The (Positive) Effect of Macroeconomic Crises on the Schooling and Employment Decisions of Children in a Middle-Income Country

Under some conditions, macroeconomic crises can have a positive effect on the accumulation of human capital because they reduce the opportunity cost of schooling. This has profound implications for the design of appropriate social protection policies. The impact of macroeconomic crises on parents' investments in the human capital of their children is a widely contested issue. Schady analyzes the effects of the profound macroeconomic crisis in Peru in 1988–92 on the schooling and employment decisions made by urban school-age children. He arrives at two basic findings: • First, the crisis had no effect on the attendance rates of school-age children. But the share of children who were both employed and in school fell significantly during the crisis. • Second, mean educational attainment was significantly higher for children who were exposed to the crisis than for those who were not. Schady argues that these findings may be related: children who are not employed have more time available and may therefore put more effort into school. He concludes with a discussion of the implications of his findings for the design of appropriate social protection policies. This paper—a product of the Poverty Sector Unit, Latin America and the Caribbean Region—is part of a larger effort in the region to understand the effects of macroeconomic crises on households, and to design appropriate policies to mitigate their costs