Can Future Uncertainty Keep Children Out of School?

Helene Lilleør

No 2008-06, CAM Working Papers from University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics

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.

Keywords: schooling; child labour; specific human capital; traditional education; intergenerational transfers; old-age security; uncertainty; income source diversification; liquidity constraints (search for similar items in EconPapers)
JEL-codes: J13 J24 O15 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2008-08
New Economics Papers: this item is included in nep-dev, nep-edu, nep-hap, nep-hrm and nep-lab
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Citations: View citations in EconPapers (4)

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