||Previous studies attempting to estimate the relative importance of family, neighborhood, residential stability, wealth, and homeownership status characteristics of childhood environments on young adult outcomes have: (1) treated these variables as
though they were independent, and (2) employed inadequate methods to control for household selection effects. Our study offers advancements in both areas. First, it treats the key explanatory variables above as endogenously determined (sometimes simultaneously so). Second, to deal both with this endogeneity and the selection
problem, we compute instrumental estimates for childhood average values of endogenous explanatory variables and use them to estimate relationships with young adult educational and labor market attainments.
We analyze data from the Panel Study of Income Dynamics (PSID) that are geocoded to Census tract data. Using this panel data set, we follow children born between 1968 and 1974 and observe their adult outcomes as of 1999 when they are between 25 and 31 years of age. We are thus able to document a wide range of background and circumstantial characteristics for the first 18 years of children’s lives. We find via OLS that, compared to children who never experience a home owned by
parents, those who spend half of their first 18 years in home(s) owned by their parents (which corresponds to the average experience in our sample) would be predicted to have, all else equal, a 17.3 percentage point (19 percent of the mean) -
higher high school completion rate. Our preliminary instrumental variable explorations suggest that these relationships may actually be even stronger.