This paper seeks to contribute to filling this gap. In particular, this study analyzes why, despite a favorable macroeconomic environment since the turn of the century— characterized by high real gross domestic product (GDP) growth rates, significant declines in poverty, and reductions in income inequality— the proportion of youth exiting school during USE age remains high, and seems to have become a “bottleneck” for further education expansion in Latin America.<sup>6</sup> Specifically, we explore the influence of three potentially important factors that could help explain the persistently high USE dropout rates in LA: i) the socioeconomic composition of the population eligible for entering USE, ii) the macroeconomic environment, particularly employment opportunities for youth entering working age, and iii) the value placed on different education levels in the labor market as measured by the returns to schooling (which could also be a proxy to education relevance).

The methodological approach used to examine the role of these factors is to construct a synthetic panel from 234 cross sections of household survey data, from which we follow schooling trajectories of different generations of individuals observed at different points in time. These trajectories are then related to the conditions characterizing the environment during the time when school enrollment decisions were being taken, which allows for an innovative perspective compared to more traditional analysis of the dropout phenomena from snapshots of cross sections of data focusing on a particular age group over time and the context at the moment of observation. The cohort approach allows us to follow life-cycle trajectories that relate more closely to the real dynamic decisions of households and individuals.

The paper is divided into 5 sections. Section 1 presents the data and main stylized facts of USE dropout at the regional level. Section 2 examines differences in youth school trajectories at the country level. Section 3 describes the three groups of potential factors of influence described above (composition of new entrants, income and employment opportunities, and perceived returns to schooling). Section 4 presents our econometric estimates of the relation between these factors and USE school dropout. Section 5 concludes and discusses policy implications.

# **1. Data and general stylized facts**

## **1.1 Data and approach followed for analyzing the dynamics of USE dropout**

Several studies have documented the low attendance and graduation levels for USE in LA. The most recent of these agree that on average around the year 2010, between 64 and 68 percent of USE age adolescents attended school in the countries in the region, and graduation rates from this

> pre-school attendance and future education outcomes in Uruguay; Maluccio, et.al. (2008) measure early nutrition’s effect on future school performance in Guatemala; and Bentaouet Kattan and Székely (2014) examine the relation between youth risks and elements of the macroeconomic context and USE attendance in Mexico.

> 6 These trends are documented by SEDLAC (2010), Levy and Schady (2013), and López Calva and Lustig (2010). Growth statistics are from the most recent World Development Indicators (WDI).

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