DETERMINANTS OF SCHOOL ENROLLMENT AND PERFORMANCE IN BULGARIA: THE ROLE OF INCOME AMONG THE POOR AND RICH

FREDERICK J. ZIMMERMAN [*] Where credit markets are incomplete, households must finance educational investments out of past savings or current earnings. Poor households, with low savings and low current income, may accordingly be highly constrained in their educational choices, whereas richer households are not. The commonly used log-expenditures specification of the relationship of income to school enrollment may therefore be imprecise. Using data from the 1995 Bulgarian Integrated Household Survey, this analysis shows that the roughly 50% of Bulgarian households with expenditures per adult-equivalent of less than 5,000 Leva (1995 prices) are financially constrained in their educational choices, while richer households are not. (JEL O25, P36, I32) I. INTRODUCTION Bulgaria's transition from central planning to a market economy has been highly disruptive for individuals and for the economy as a whole. Employment fell by 31% from late 1989 to late 1991 (Sziraczki and Windell, 1992), and has recovered little since (OECD, 1998). Output in 1996 stood at only 75% of its communist era level (World Bank, 1999). One of the main ways in which the Bulgarian government has chosen to cope with the fiscal strain while trying to maintain political stability has been to keep all of the public transfer programs in place but to allow their value in real terms to erode. For example, the ratio of the value of unemployment benefits to the average wage fell from 1991 to 1993 by about 35% (Zhetcheva, 1994), this at the same time that real wages themselves fell by 34% (Bogetic and Fox, 1993). As of 1993, 39% of households were below the government-defined "social minimum" poverty line, and 23% were below the "subsistence minimum" (Cornia, 1994). The simultaneous decline in living standards and the erosion of public transfers raises the question of their impact on households' investment in the long-term welfare of their children. A primary purpose of this article is to assess the determinants of school enrollment in Bulgaria. Health and education human capital are major determinants of household welfare and income-earning potential. This is particularly true in an economy whose physical capital stock has been seriously eroded. School enrollment and school performance are especially important forms of human capital investment. A secondary purpose of this analysis is to explore whether the poor in particular are income-constrained in their schooling choices. If so, there may be good long-term equity reasons for maintaining Bulgaria's current level of social transfers. Table 1 shows the level of primary and secondary school enrollments for Bulgaria and other countries in the region. As can be seen, Bulgaria is approximately in the middle (or slightly below) in this group. Moreover, although enrollments for many of the countries in the region have remained steady or even increased, school enrollments in Bulgaria have tended to fall since 1989: from 98% gross primary enrollment in 1990 to 94% in 1994; and from 75% gross secondary enrollment in 1990 to 72% in 1994. Education is a critical asset for individual welfare. Private returns to education are high in countries with levels of development similar to Bulgaria's: up to 40% per year of education in other middle-income countries, for example (Schultz, 1993). Tansel (1994) reports that for Turkey, an additional year of high school education raises the probability of wage employment and the expected wage conditional on employment by as much as 80%. Accordingly, limited access to education may mean a lifetime of low income. In addition to the overall level of schooling, the timing of schooling is also important. Children who fail a grade or sit out a year of school to continue their education later are able to capture fewer of the benefits of education than children whose education is continuous. Light (1995) reports that an interruption in schooling correlates with starting wages on the first job that are 10%--20% lower than the wages of someone who has the same educational attainment, but was continuously schooled. …