Estimating Compulsory Schooling Impacts on Labour Market Outcomes in Mexico using Fuzzy Regression Discontinuity Design (RDD) with parametric and non-parametric analyses

This study estimates the impacts on labour market outcomes of the 1993 compulsory schooling reform in Mexico. A well-known problem in this analysis is the endogeneity between schooling and labour market outcomes due to unobservable characteristics that could jointly determine them. There is also heterogeneity in the empirical evidence of the effectiveness of such schooling policies among developing and developed countries perhaps due to the different contexts and identification strategies used. Some studies use Instrumental Variables (IV) and Difference in differences (D-i-D) methods to tackle endogeneity issues. Most analyses use a Regression Discontinuity Design (RDD) approach with different order polynomial of the year of birth (i.e., cubic or quartic order), whereas few studies use months of birth for more accurate and robust estimates as it allows more schooling variation within a year. The impact of the Mexican policy is analysed in this study through a fuzzy RDD approach with the use of Stata for the period 2009 to 2017. It addresses endogeneity by exploiting the age cohort discontinuities in months of birth, for more robust estimation, as an exogenous source of education variation. Fuzzy RDD then compares schooling and labour market outcomes among the birth cohorts exposed to those not exposed to the reform. The fuzziness accounts for the imperfect compliance by using the random assignment of the exposure to the policy. Stata allows plotting discontinuity graphs between cohorts as well as the McCrary test to validate the use of this methodology. It also facilitates parametric and non-parametric analyses. The empirical evidence suggests that the 1993 compulsory schooling law, although raising average school attendance, was an insufficient policy to impact labour market outcomes in Mexico. The analysis contributes to the limited literature on the returns to compulsory schooling that uses a rigorous RDD methodology in developed and developing countries.