Hit and Run? Income Shocks and School Dropouts in Latin America. Policy Research Working Paper 8344

How do labor income shocks affect household investment in upper secondary and tertiary schooling? Using longitudinal data from 2005-15 for Argentina, Brazil, and Mexico, this paper explores the effect of a negative household income shock on the enrollment status of youth ages 15 to 25. The findings suggest that negative income shocks significantly increase the likelihood that students in upper secondary and tertiary school exit school in Argentina and Brazil, but not in Mexico. For the three countries, the analysis finds evidence that youth who drop out due to a household income shock have worse employment outcomes than similar youth who exit school 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.