The Effects of Income Shocks on Child Labor and Conditional Cash Transfer Programs as an Insurance Mechanism for Schooling By

This paper investigates the effects of adverse income shocks on household decisions concerning school attendance and child labor in rural Colombia and whether a conditional cash transfer program (CCT), Familias en Accion (FA), protects children’s human capital investments of beneficiary households. If households are not totally insured, and credit markets are incomplete, we might expect changes in children’s labor supply as a response to adverse shocks where labor markets exist. Using a three-year panel of beneficiary and control households and controlling for potential program endogeneity, we find that crop or job loss and illness shocks significantly increase child labor and access to credit helps reduce the adverse effect of these shocks. Additionally, the results suggest that FA consistently reduces the number of hours of child labor and increases the number of study hours, but not school enrollment, for households under shocks. In addition, we find that the program provides strong incentives for children to combine work and school when households are exposed to shocks. These results reveal that CCT programs can work as insurance for the schooling of the poor but are not able to completely displace costly risk-coping strategies.