The focus of the present study is on verifying the influence of three groups of variables, which could help explain why in the context of a more stable and favorable environment, dropout at USE attendance age has increased in the region. We start by looking into the evolution of cohort size and cohort composition, we then turn to the evolution of income and labor market conditions, and finally we document the trends in the returns to schooling in the region.

# **3.1 Cohort size and composition**

First, we focus on verifying the extent to which increased primary and lower secondary (LS) graduation rates and the influx of previously excluded low income groups generate demand pressures that current USE systems have not been able to adequately absorb.<sup>20</sup> If the poor are more prone to drop out from school, their increase as a share of new entrants into USE could be translated into higher dropout. In addition, the demographic shift that most LA countries have experienced since the 1990s has generated the largest numbers of youth of upper secondary age ever observed, although with decreasing trends in recent years.<sup>21</sup> In fact, as shown in IDB (2000) Latin America’s accelerated demographic transition by the mid20<sup>th</sup> century resulted in declining population dependency rates since the 1970s. The resultant shifts in the age structure could have affected school enrollment through various channels. On one hand, the reduction in the share of the 0-14 age group (considered economically dependent on working age adults) means more available resources per child. This in turn might increase LS enrollment and completion rates through an income effect, which would augment the number of individuals eligible (and the demand) for USE services.<sup>22</sup> On the other, the transition also implies shifts in the relative weight of the population at the USE ages of 15 to 17/18. Increases in the relative weight of this group would impose additional pressure on USE services, and vice versa.<sup>23</sup> 20 According to the most recent WDI data, LA has universal primary school attendance, with completion levels close to 90 percent, and LS attendance over 90 percent. Alfonso, et.al. (2012) use household survey data and estimate similar attendance rates. Improvements in the region have been documented recently by Bassi, Busso, and Muñoz (2013). LS education has become compulsory throughout the region for youth aged 12-14 -with the exceptions of Honduras and Nicaragua, where Primary education is still the only compulsory level. In some cases, USE is also compulsory by law, including Argentina, Brazil, Chile, Mexico, Peru, Uruguay, and República Bolivariana de Venezuela (See OEI (2010)).

> 21 T his is documented in Behrman, Duryea and Székely (2006).

22As shown by Berlinski, Galiani and Manacorda (2008) greater enrollment rates even earlier in Preschool can have subsequent and growing effects on enrollment in LS and USE and on permanence in the education system. 23An additional trend accompanying the demographic transition in LA is urbanization, which may affect the incentives to invest in human capital through 1) shifting value of child labor in the move from agricultural activities on family farms to production structures associated with urbanization (in the latter the opportunity cost in terms of foregone labor activity to attend school declines), 2) lower typical costs of providing schooling in urban than rural areas, 3) higher typical expected returns to education in urban areas. As such, urbanization is expected to be positively associated with higher enrollment and attainment. Similarly improvements in health and nutrition may have impacts, as they can extend life expectancies, improve cognitive capacities and increase potential years of labor market participation, which in turn increase the returns to investments in schooling (see for instance Maluccio, et.al. (2006)). Thus, such improvements are expected to be associated with improvements in schooling attainment.

13