Early School Leaving and Work Outcomes in Developing Countries

This paper investigates the impact of early school leaving on the work outcomes of young individuals in ten developing countries belonging to three world macro-regions (Sub Saharan Africa, South-East and Central Asia, Latin America and Caribbean). Because early school leaving prevents human capital accumulation, it is likely to be associated with poorer economic performance, especially in those countries experiencing a significant increase in demand for skilled labour. Nonetheless, the impact of early school leaving on work prospects is mixed. We adopt a structural equation model, including an early school leaving equation and a work equation, to account for the possibility that common unobserved factors guide both early school leaving and work outcomes (endogeneity). We use data from the ILO School-to-Work Transition Survey. Our study finds that early school leaving increases the probability of being in unpaid work and self-employment and that, once endogeneity is accounted for, also the probability of being employed. This is consistent with a labour market where demand for unskilled workers is predominant, and where early school leaving is a first step towards employment. On disentangling the performance of females, however, we show that early school leaving reduces their work prospects, increasing marginalization and gender duality. Finally, we find that the propensity to leave school to enter the labour market prevails in non-rural areas. We contribute to the empirical literature by providing a novel comparative analysis of ten developing countries which distinguishes among four work outcomes (inactivity, unpaid work, self-employment, employment) and by modeling possible endogeneity. Our findings suggest the importance of promoting policies aimed at mitigating female early school leaving and measures intended to increase the assimilation of females into the labour markets of developing countries.