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Can Future Uncertainty Keep Children Out of School?

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Author Info
Helene Bie Lilleør (Department of Economics, University of Copenhagen)

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Abstract

There is little doubt in the literature, that poverty and liquidity constraints can drive children out of school and into child labour in developing countries. But are there other important explanations for low primary school enrolment rates? The child labour and schooling literature often ignores that uncertainty about future returns results in a need for risk diversification, that children function as old-age security providers when there are no available pension systems, that the human capital investment decision of one child is likely to be influenced by that of his/her siblings, and that rural parents face a choice of investing in either specific or general human capital of their children. In this paper, I investigate the effects of future income uncertainty on the joint human capital investment decision of children in a household. I develop and calibrate a simple illustrative human capital portfolio model and show that existing levels of uncertainty can indeed result in less than full school enrolment within a household, even in a world of perfect credit markets. The paper thus offers an alternative explanation for why it might be optimal for rural parents not to send all of their children to school.

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Paper provided by University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics in its series CAM Working Papers with number 2008-06.

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Length: 39 pages
Date of creation: Aug 2008
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Handle: RePEc:kud:kuieca:2008_06

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Related research
Keywords: schooling; child labour; specific human capital; traditional education; intergenerational transfers; old-age security; uncertainty; income source diversification; liquidity constraints;

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Find related papers by JEL classification:
J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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