similar pattern of net coverage rates below the regional average, combined with significantly higher shares out of school that reach between 43 and 47 percent, twice as high as the Latin America average. Thus, in these countries, overage is lower, but only because more youth have already left the schooling system by age 17.

Students who are overage due to starting late and/or repeating grades are more likely to drop out, as demonstrated with administrative data by Manacorda (2006) in Uruguay and Branson et al (2014) in South Africa. This relationship may exist because the same factors that drive late school entry or poor performance also drive later dropout, because the opportunity costs of remaining in school rise as children age, because overage and poorly performing students are pushed out of the system rather than supported, or any combination of these and other factors. Regardless of the underlying drivers, the existence of a correlation suggests that the results in Figure 11 are an indication of the prevalence of dropout in Central America in the near future.

# **2. Consequences of dropout in Central America**

The previous section documented the patterns of school enrollment and dropout at the critical ages where individuals would be expected to be in secondary school. In this section, we explore some of the consequences of prematurely leaving school.

Leaving the schooling system before US completion can have a wide array of effects. Here we explore some of its labor market consequences, which depend on the interaction between the accumulation of human capital acquired through education, and the characteristics and evolution of the productive sectors of the economy that generate the conditions for its use. For instance, if there are restricted employment opportunities, the actual effect of early exit on economic wellbeing might be lower than expected.<sup>13</sup> The probabilities of working, and of working in the formal sector, are strongly related to educational attainment throughout individuals’ working lives. As shown in Table 2, unemployment rates among 25-45 year olds are higher among individuals who did not complete US, as compared to the population average and to those who attained 13 years of schooling or more. The largest differences are found in Costa Rica, where individuals with 13 years of schooling have unemployment levels 5.4 percentage points lower than those who attained fewer years. Informality is also more prevalent among workers with lower education levels. In Panama, Guatemala, Honduras, and Nicaragua the rate of informality among workers who only reached LS is over 32 percentage points higher than for workers with at least some higher education. The extreme case is Honduras, where the difference is 46 percentage points.

> 13 In Central America, and across Latin America more broadly, there are some signs that although education can make an important difference, its potential is not being fully capitalized precisely because of the slow generation of opportunities to put it to work. One clear illustration of this is that the proportion of youth in Latin America who are out of the schooling system and are not employed, is high and has been persistent over the years -this has been illustrated by Cardenas et.al. (2015) and Székely and Karver (2015).

11