Does Unemployment Worsen Babies’ Health? A Tale of Siblings, Maternal Behaviour and Selection

In this paper we study the effect of unemployment on birth outcomes by exploiting geographical variation in the unemployment rate across local areas in England, and comparing siblings born to the same mother via sibling fixed effects. Using rich individual data from hospital administrative records between 2003 and 2012, babies' health is found to be strongly pro-cyclical. We find heterogenous responses: unemployment has an effect on babies' health which varies from strongly adverse for the poorest, to mildly favourable for the richest. By using medically measured indicators, we test three potential mechanisms which can explain both the overall and heterogenous findings: maternal stress, health behaviour, and prenatal care. We also provide suggestive evidence that different selection into fertility drives the opposite counter-cyclical results found in other studies which do not employ sibling fixed effects