In all Latin American countries, a vast majority of children and youth are in school until they complete their lower Secondary education.<sup>3</sup> Therefore, the decision making process regarding transitions into the labor market or into the Osow status usually takes place at around age 15 - which is the official age for exiting Lower Secondary education in most countries in the region.<sup>4</sup> Following the theoretical framework by Behrman et.al. (2014), at this point of the life cycle households and individuals jointly decide on the time allocation that maximizes the net present value of the future flow of indirect utility. The specific age at which this occurs and the balance of influence in the decision between the individual and the household as a unit depends on the age for attending the compulsory education levels in each country and on cultural patterns, among others. Individuals and households decide on whether those reaching the critical age continue in the education system, whether they become employed (or do both simultaneously), or if they remain in the Osow status. The decision is influenced by the endowments accumulated so far by the relevant individual or bequeathed by parental transfers, the history of past decisions regarding time allocation, the quality of education services available, the returns to education, as well as context variables including aggregate macroeconomic conditions, sector-specific shocks, trade policy, cultural patterns, and community norms, among others. Decisions are also influenced by the extent to which households and individuals are subject to a series of constraints including the available budget, access to credit, and future expectations.

Thus, the Osow youth phenomenon is intrinsically dynamic. To examine it empirically would ideally entail access to panel data following specific individuals over a sufficient number of years through their life cycle, and relate their observed outcomes to the variables of interest. Unfortunately, not enough of these kinds of data are available in Latin America.<sup>5</sup> An alternative, followed in the literature of life cycle choices, has been to use repeated cross sections of data – which typically come from household surveys- that allow tracking the life cycle path of representative groups of individuals belonging to a birth cohort.<sup>6</sup> 3 As shown in Alfonso, et.al. (2012) average Primary attendance rates in LA countries are over 90 percent and reach around 80 percent for Lower Secondary education. Similar improvements have been documented recently for Latin America by Bassi, Busso, Urzúa and Muñoz (2013) for the Upper Secondary level using household survey data.

4Actually, Lower Secondary education attendance is compulsory for youth aged 12-15 in 16 out of 18 Latin American countries –including Argentina, Bolivia, Brazil, Chile, Costa Rica, Colombia, Ecuador, El Salvador, Guatemala, Mexico, Panamá, Paraguay, Peru, Dominican Republic, Uruguay and Venezuela- and only in Honduras and Nicaragua is Primary education still the only compulsory level (OEI (2010)). The International Labor Organization (ILO) 1973 _Minimum Age Convention_ sets the minimum age for admission to employment or work at age 15, and in most countries in the world, legal employment is allowed from 15 years of age on (definitions in <u>http://www.ilo.org/global/standards/subjects-covered-by-international-labour-standards/child-labour/lang-en/index.htm).</u> 5 Several countries do collect panel data for labor market surveys, but they typically follow individuals for a reduced number of months, which does not allow for a longer term perspective as is required here.

6 This approach was proposed initially by Browning, Deaton, and Irish (1985) for analyzing other outcomes that are expected to vary throughout the life cycle, such as savings. The basic idea is to use repeated cross sections to follow 4