Family and friends: the driving forces behind our academic success and skill development

A large body of literature has demonstrated the importance of both cognitive and noncognitive skills in predicting a diverse array of socio-economic outcomes. There is ample evidence that both are important determinants of educational achievement, earnings, financial decisions, risky behavior, and so on, but the degree of their importance varies across outcomes. In order to close the gap in various socio-economic metrics among individuals, these findings show the need for an understanding of the production function of both cognitive and noncognitive skills. By the same token, understanding and estimating education externalities are important for policymakers, educators, and parents in program evaluations and cost-benefit analyses of public and private investments in education. This thesis provides empirical evidence on the influence of friends and family on in shaping children’s cognitive achievement, behavioral traits and educational attainment.

In the first chapter, I estimate peer effects in various skills and habits. Given that humans are social by nature, the existence of peer effects would have far-reaching implications for parents, school or community policies. Therefore, it is important to know the size and nature of peer effects and learn if and how these effects can be exploited by policy makers to generate social multiplier effects for a wide array of socio-economics variables. However, measuring the importance and nature of peer effects has been proven notably difficult. The identification of the causal effect of peers’ outcome is often hindered by the presence of correlated effects, influences of peers’ background characteristics and the simultaneity of behavior of interacting agents. Drawing upon the recent advancement of social network literature, this study exploits the structure of interactions in a directed friendship network to identify causal peer effects. Using Add Health data, the findings of this study suggest that there exist sizeable within-outcome peer effects on a student’s academic performance, sociability, smoking intensity, alcohol consumption and delinquent behavior. A student’s academic performance and delinquency are also impacted by the sociability of their friends. Furthermore, I investigate the possible mechanisms underlying the large peer spillover effects and find that both parental and school interventions can promote positive spillovers and mitigate negative spillovers.

In Chapter 2, we estimate within-generational and inter-generational spillover effects in educational attainment based on data from the NLSY surveys. This study finds that a one-year increase in first-born’s education causes a significant increase of 4.5 months in younger sibling’s schooling and a one-year increase in maternal education significantly increases child’s education by around 3 months. It also finds that the higher the birth order, the smaller the maternal and first-born’s spillover effects. Furthermore, we provide empirical evidence that maternal education is passed on to children through family income as well as child rearing practices. Higher maternal education leads to higher family income as well as better cognitive stimulation and emotional support for the children that, in turn, influence children’s educational attainment. These findings emphasize the importance of both mothers and sibling’s education in understanding the human capital production function and estimating education externalities.

The third chapter studies the contemporaneous effects of family income and maternal employment on the cognitive and noncognitive skills of children ages 5-16. By using legislative changes associated with income tax liabilities and interstate banking as exogenous sources of variation in family income and maternal labor supply, this study makes important improvements to the methodologies existing in the literature. It shows that on a child’s cognitive achievements family income has a significant positive effect, but maternal labor supply has a negative effect. Family income has no significant effect on a child’s noncognitive development, whereas maternal work has a significant effect although the direction of effect varies among different sub-scales. These findings confirm the existence of the trade-off between time and money that mothers face. The trade-off arises because maternal working hours, with its negative direct effects, may yield positive indirect effects through income. Furthermore, our extensive investigation on mechanisms suggests that that the available sources of care as an alternative to parental care may not be as conducive to producing non-cognitive skills as they are to producing cognitive skills. With an increase in income, families could afford a better school or a better after-school activity but these alternative sources may be better only at producing cognitive skills. Thus, even with an increase in income families have little scope to switch to a more productive alternative care conducive to non-cognitive skills, resulting in an insignificant effect of income.