Journal of Development Economics, forthcoming, Carlo Alcaraz, Daniel Chiquiar, Salcedo (2010)  and Alejandrina

This study examines the relationship between remittances and school attendance and child labor in Mexico and finds that decreased remittances during the 2008-2009 recession led to decreased school attendance and increased child labor.

The effect of remittances upon receiving communities has been a lively debate among economists.  One facet of that debate is educational impacts.  Remittances might cause children to stay in school by providing a financial cushion for families.  However, they might cause children to leave school if school is perceived as a low value activity for children expected to migrate; if migration disrupts family dynamics and negatively affect attendance; or if remittances encourage families to start businesses and pull their children out of school to work at them.  Studies have found that remittances lead children to stay in school and decrease child labor in Pakistan, El Salvador, Latin America, and the Philippines.  The data on Mexico has to date appeared inconclusive. 

Alcaraz, Chiquiar, and Salcedo investigate this question in Mexico, making use of the fact that migrant laborers from Mexico were seriously affected by the 2008-2009 US recession.  Unemployment rates among Mexican immigrants rose sharply after September 2008, and remittances to Mexico fell 20% from the second quarter of 2008 to the first quarter of 2009.  Remittances constitute 38% of migrant households’ income in Mexico.  The authors ask a defined question: “whether households that face a negative shock on their remittance flows sort out, in the short term, the reduction in income by increasing child labor or taking their children out of school.”

Methodologically, the authors use data from the 2008 and 2009 quarterly household Mexican National Occupation and Employment Surveys.  This survey indicates which households receive remittances.  The authors conduct a differences-in-differences estimation.  They use an instrument in order to generate causal results.  The treatment group consists of 12-16 year old children from households that receive remittances in the second quarter of 2008.  The control group consists of 12-16 year old children from households that did not receive remittances in that period nor in the first quarter of 2009.  This differences-in-differences method captures “the differential effect of the crisis on children from remittance recipient households relative to children in non-recipient households.”

They find that “the shock on remittance–recipient households caused an increase in the probability that a child works of 9.8 percentage points, from a baseline level of 15.7%. Moreover, it caused a decrease in school attendance of 15.6 percentage points, from a baseline of 82.2%.”

These results support the theory that remittances are important in relaxing credit constraints and providing liquidity.  When that liquidity is not present, “households that experiment a disruption in remittance flows seem to be forced to take their children out of school to work.”