Parental Response to Changes in Return to Education for Children : The Case

Previous research has shown that school enrollment in developing countries responds to the changes in return to education generated by a change in demand in the export sector, that pays higher wages for a given skill level. Using data from Mexico, I show that the negative effects of a lower return to education are not limited to lower rates of school enrollment. Parents also respond to a decrease in the return to education for children, as a result of an increase in labor market opportunities for unskilled labor in the export sector, by reducing spending on children’s education even while they are enrolled at school. This suggests that parents respond along the intensive margin as well as on the extensive margin. JEL-Code: O12, I21, I22, O14, O54 ∗Thanks to Eduardo Gonzalez Pier and Judith Frias at IMSS for making available the Municipality level employment data. I would also like to thank Jason Abrevaya, Sandra Black, Nora Gordon, Daniel Hamermesh, Leigh Linden, Emily Oster, Steve Trejo, Thomas Wiseman, and participants of the Labor lunch seminar at UT Austin for comments and suggestions. All errors are mine. †Department of Economics, Lund University, Sweden. email: [email protected]