For low-income households in developing countries, temporary unexpected shocks, such as ill health or natural disasters, can significantly disrupt financial stability. To cope with such shocks, households employ several strategies to maintain relative financial stability, including the use of children as sources of income. Children can either directly enter the labor market or contribute to household chores so their parents can work, often requiring them to be pulled out of school. Children absent from school even temporarily are less likely to subsequently return to and complete school. As a result, children who leave school to help cope with a temporary shock may face permanent negative returns on skills development and future income.
Unexpected shocks are common in Mexico and children are often pulled out of school to cope with these temporary periods of hardship. Students’ future school enrollment is strongly tied to their present state of enrollment; enrolled students are more likely to continue school, while their counterparts are less likely to return. The enrollment rate decreases from 95 to 59 percent between ages 11 and 14. Oportunidades – previously known as Progresa – has worked to improve and sustain enrollment in school among poor families in Mexico since 1997. It provides conditional cash transfers (CCTs) to poor mothers in rural communities that are contingent upon consistent school enrollment and visits to health centers. The transfer amounts vary based on gender and grade level. In 1998, primary school children, regardless of gender, received $70 per year in third grade, increasing to $135 by fifth grade. Secondary school boys received a maximum of $220 and girls received $255 per year.
Oportunidades randomly assigned 506 small towns or villages to a treatment group that received CCTs and to a comparison group that received nothing. Every six months between November 1997 and 2000, the program collected census data from both groups to evaluate the program’s effects. Researchers used panel data on households in treatment and control villages to determine both the effects of temporary shocks on school enrollment and child labor, and of Oportunidades’ CCTs. The sample size included 52,719 children who were 5-17 years old in 1997. To estimate the effects of Oportunidades’ CCTs on school enrollment and child labor, researchers used a linear fixed effects model. A similar model was also used to estimate the effect of shocks – such as unemployment or illness of the household head, natural disasters and droughts – on child labor and school enrollment. Researchers compared the treatment and control groups to evaluate the effect of CCTs on school enrollment and child labor during temporary shocks.
Results and Policy Implications
Results indicate that CCTs can be successful in both improving school enrollment and protecting children from serving as risk-coping agents during periods of shock, particularly when targeted at key points of transition from primary to secondary school. First, transfers increased school enrollment of both genders in primary and secondary school. The largest effect was among students at the transition point from primary to secondary school, when most begin working; girls in the treatment group were 15 percent more likely to enroll in secondary school than those who had not received the cash transfers. Oportunidades also decreased the risk of child labor. Among 12-14 year old boys, the incidence of child labor decreased by 20 percent; among girls of the same age it decreased by 50 percent. Furthermore, the results suggest that temporary shocks negatively affect school enrollment, but that CCTs can mitigate that effect. Specifically, unemployment and illness shocks decreased the probability of school enrollment by 1.7 percent. Natural disasters, excluding droughts, decreased the probability of enrollment by 3.2 percent. In both cases, cash transfers mitigated this risk and prevented children from dropping out. Oportunidades also protected children from entering the workforce after two types of unexpected shocks: droughts and natural disasters; however it did not protect children from entering the workforce in the event of an unemployed or sick household head. Based on these results, there is strong evidence that CCTs not only improve school enrollment and decrease the use of child labor, but also prevent children from being used as part of a risk-coping strategy during temporary shocks. Thus, in addition to their well-documented use as a tool to improve school enrollment, CCTs can also serve as a flexible safety net introduced during periods of temporary shock to help keep children in school. This risk-coping effect of CCTs is important to protect children’s skills development and ultimately increase their future income in spite of exposure to uninsured shocks.
Photo Credit: Beatriz Magaloni, "Women and their husbands line up to receive conditional cash transfers in at the regional office of Oportunidades in Chiapas, Mexico."