Rainfall shocks and learning outcomes: dynamic persistence and the role of local labour demand

We present evidence on the role of local labour markets in driving the persistent and gendered impact of rainfall shocks on learning outcomes in rural India. We find contrasting impacts of rainfall shocks by variation in soil texture, which serves as an exogenous driver of female and children's labour force participation. Strikingly, in non‐loamy soil (high female and child labour force participation) areas, exposure to positive shocks in early life is associated with a higher likelihood of dropping out of school and being in a lower grade than is age‐appropriate, while effects are considerably attenuated in loamy areas. Furthermore, we examine dynamic complementarities and find that female children in non‐loamy areas bear the highest learning losses from a positive rainfall shock in their school‐going years, especially when they have faced positive shocks in early life. We investigate potential mechanisms by studying children's labour market response under rainfall shocks, and show that the gains or losses in learning outcomes are systematic to local labour market conditions, which influence the opportunity cost of schooling under shocks.