Traumatic Experiences Adversely Affect Life Cycle Labor Market Outcomes of the Next Generation – Evidence from WWII Nazi Raids

This paper examines the causal effect of a traumatic event experienced by pregnant women on the life-long labor market outcomes of their offspring. We exploit a unique natural experiment that involved randomly placed Nazi raids in municipalities in Italy during WWII. We link administrative data on male private sector workers to information about Nazi raids and war casualties. Our results suggest that prenatal exposure to traumatic events affects offspring earnings throughout the working career and in retirement. The lower earnings are due to lower educational attainment, the type of jobs held, and interruptions in working careers due to unemployment. We further find that prenatal exposure exacerbates the adverse effects of later-life job loss on earnings. We use a medical database on health expenditures to interpret the effect estimates. The prenatally exposed have higher medical expenditures on diseases of the nervous system and mental disorders, indicating that stress is likely to be an important factor driving our findings.