also emerges, with greater declines in the returns to higher education in Costa Rica, El Salvador, Guatemala, and Panama relative to the Latin America average, but considerable increases in Honduras and Nicaragua. The relative returns to US declined more than the Latin America average in El Salvador, Nicaragua, and Panama, but increased considerably in Honduras.

Across Central America, then, the negative effects of demand variables are counterbalanced by the positive effects of labor market variables, with marginal impacts from macroeconomic changes and fluctuations in the returns to schooling. El Salvador stands out as an exception, where changes across all variable groups would imply negative effects on enrollment. The results of this decomposition of the change in secondary enrollment rates across cohorts for each country, estimated by multiplying the changes in the independent variables by the coefficients from the base regression, are summarized in Figure 18. Focusing specifically on labor market opportunities, one very interesting piece of causal information comes from a natural experiment exploiting the increase in demand of unskilled workers from the growth of factories in Mexico in the late 1980s and 1990s. Atkin (2012) finds that this increase caused a rise in secondary dropout rates, as the opportunity cost to staying in school rose.

Young people in Central American countries with high rates of out-migration are also likely to consider not only their domestic labor market, but also opportunities in international labor markets when weighing both the opportunity costs and expected returns to persisting in school. While changes in international labor markets are not accounted for in the model, we look at a snapshot of the education of migrants to the United States for suggestive evidence. In particular, we look at the schooling participation and attainment of young people in the United States from the highest Central American migrant-sending countries (El Salvador, Guatemala, and Honduras), compared to their counterparts at home. As shown in Table 7, over 90 percent of youth ages 12-17 are in school, meaning that relatively few young migrants of LS and US ages are in America and working. At the same time, young adults ages 18-25 who migrated to the United States at age 18 or later (so were likely to have completed any secondary schooling at home) have higher educational attainment than their counterparts at home. These results suggest that migrants are positively selected on education, and that labor market opportunities in the United States may not be a major factor influencing dropout in Central America. However, population data in the United States undercounts unauthorized migration, and further research would be needed to understand the decision-making processes behind migration in order to provide a more thorough assessment.

# **3.3 Trends in education quality**

An important community or macro level factor not mentioned so far in the empirical analysis is education quality. As discussed in the conceptual framework, the endowments with which children enter school are further expanded depending on the strength of the educational services provided. Low-quality education creates learning deficits in children that build up over time, reducing the benefit of persisting in school. Using a unique dataset from Egypt, Hanushek, Lavy, and Hitomi (2008) provide empirical evidence of this phenomenon – students attending lower quality schools (measured by expected learning gains over time) are more likely to drop out, even when controlling for students’ own abilities. While data on learning outcomes in Central America is not available over a substantial time series, nor at a micro level in recent years, regional exams of the past decade do provide an informative snapshot.

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