In School or at Work? Evidence from a Crisis

This paper makes use of the income variability generated by the macroeconomic crisis of 2001/2002 to examine schooling outcomes in Argentina. The effect of this macroeconomic swing is examined with a focus on whether the income or substitution effect dominates in the decision-making of young people. It is demonstrated that the probability of being in school was 6.5-10 percentage points higher in May 2002 than in 2001 for 15-18-year-olds. This is probably the largest (positive) effect found in the developing country literature so far and is comparable to the effect of a 10% increase in household income. For 19-25-year-olds, the probability is between 2 and 6 percentage points higher. Results are robust to a wide range of controls and specification checks. Difference-in-difference panel estimation corroborates these findings and shows that the increase in schooling seems to be driven by a decrease in school exits during the crisis.