Hit and Run? Income Shocks and School Dropouts in Latin America

Liliana D Sousa,Elena Crivellaro,Paula Cerutti,Germán Reyes

doi:10.1111/labr.12156

Liliana D Sousa, Elena Crivellaro + Show 2 more

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https://doi.org/10.1111/labr.12156

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Abstract

AbstractHow do labor income shocks affect household investment in upper secondary and tertiary schooling? Using longitudinal data from 2005 to 2015 for Argentina, Brazil, and Mexico, this paper explores the effect of a negative household income shock on the enrollment status of youth ages 15–25. The findings suggest that negative income shocks significantly increase the relative risk of students exiting upper secondary and tertiary education in Argentina and Brazil, but not in Mexico. For the three countries, the analysis finds evidence that youth who exit school due to a household income shock have worse employment outcomes than similar youth who exit without a household income shock. Differences in labor markets and safety net programs likely play an important role in the decision to exit school as well as the employment outcomes of those who exit across these three countries.

Highlights

Does a negative household income shock affect the educational attainment of the children in that household? This question has attracted significant attention among economists, as understanding the adjustment mechanisms of households to shocks is crucial from a policy perspective
We focus on the extent to which household income shocks in Argentina, Brazil, and Mexico are associated with exits from upper secondary and tertiary school
Our results suggest that negative shocks experienced by the household’s main earner – either a large reduction in income or a job loss leading to unemployment - increase the relative risk that students exit upper secondary or tertiary education in the three countries

Summary

Introduction

Does a negative household income shock affect the educational attainment of the children in that household? This question has attracted significant attention among economists, as understanding the adjustment mechanisms of households to shocks is crucial from a policy perspective. Does a negative household income shock affect the educational attainment of the children in that household? Limited and inequitably distributed access to education and human capital formation leave many individuals unable to compete for highproductivity jobs throughout the region, reducing household welfare and economic growth. We focus on the extent to which household income shocks in Argentina, Brazil, and Mexico are associated with exits from upper secondary and tertiary school. Income shocks during upper secondary and tertiary schooling can have persistent effects on human capital, both by reducing formal education and by generating lowquality job matches for youth. Learning about households’ response to shocks is informative for the design of education policies (human capital-enhancing) and social policies (inequality-reducing) targeting more disadvantaged families with young children

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