(2012)). In 6 out of the 8 countries in the study, the category of “lack of interest” shows the highest proportions, and even in the two countries where economic reasons present larger shares (Guatemala and Paraguay) “lack of interest” remains one of the main explanations. Bentaouet Kattan and Székely (2014) report similar results for Mexico, where 44 percent of USE dropouts are related to “lack of interest in school due to low relevance.”<sup>35</sup> We estimate the yearly returns to schooling in LA from our household survey data set (Figure 9).<sup>36</sup> We find that the returns to USE and to Higher Education relative to Primary schooling in the region have followed an inverted “U” shape trend, increasing continuously between the early 1990s and the year 2000, and declining slightly thereafter.<sup>37</sup> This suggests that in line with the aforementioned qualitative data, the incentives for USE age youth to invest in graduating from USE or higher education, although positive are decreasing and therefore, might be generating lower incentives to remain in school. In 13 out of the 18 countries analyzed, the returns to USE relative to primary were lower in years around 2010 as compared with years around 2000 (Table A.9).

Potentially, the effect on enrollment from declining relative rewards to USE could be compensated by increasing rewards to higher education, since graduating from USE is a prerequisite to achieve this level. However, as shown by the country data, in 11 out of the 18 countries under analysis the returns to higher education relative to primary schooling also declined. These shifts could reinforce the incentives for dropping out of school prematurely.

# **4. Factors associated with school dropout across generations in LA**

The objective of this section is to verify empirically the magnitude and direction of the different forces documented in the prior section, to the extent possible. We exploit the same synthetic panel of household survey data, from which we follow cohort trajectories over time and link with data on variables representing the environment in which school enrollment decisions were made.

We start from the basic idea that the relation between the share of youth enrolled in school and the factors that determine it can be expressed as:

> 35 Th is perceived lack of USE relevance is in line with a growing literature . S ee Pritchett and Borghans, (2014), Banerji (2013), Almeida, et.al. (2012), Bassi, et.al. (2012), Wang (2012), Willingham (2010), De Ferranti, et.al (2003), Manpower (2010), OECD (2014), and McKinsey (2012), Manacorda (2013) a nd Jensen (2010).

> 36 Returns are estimated from standard Mincer regressions that control for sample selectivity bias through the Heckman correction.

> 37 Authors such as Manacorda, Sánchez Páramo and Schady (2010) document increased returns to skills in LA during the 1980s and 1990s, with declining premiums during the 2000s. Bassi, Busso and Nuñez (2013), Aedo and Walker (2012) and Gasparini, et.al. (2011) also document similar trends. Explanations for the schooling premium decline include the increased supply of workers with more years of schooling, inclusion of lower ability workers with greater education in the labor force (which is consistent with increased inclusion in schooling of relatively poorer individuals), lower education quality caused by a rapid expansion of the LS system and by the inability of education structures to adapt to labor market needs, and the reduction in the relative demand for higher skills in LA  due to the increased demand and prices for commodities in world markets, which are unskilled labor intensive.

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