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Climate Variability, Child Labour and Schooling

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Climate Variability, Child Labour and Schooling Climate Variability, Child Labour and Schooling: Evidence on the Intensive and Extensive Margin Jonathan Colmer September 2013 Centre for Climate Change Economics and Policy Working Paper No. 148 Grantham Research Institute on Climate Change and the Environment Working Paper No. 132 The Centre for Climate Change Economics and Policy (CCCEP) was established by the University of Leeds and the London School of Economics and Political Science in 2008 to advance public and private action on climate change through innovative, rigorous research. The Centre is funded by the UK Economic and Social Research Council and has five inter-linked research programmes: 1. Developing climate science and economics 2. Climate change governance for a new global deal 3. Adaptation to climate change and human development 4. Governments, markets and climate change mitigation 5. The Munich Re Programme - Evaluating the economics of climate risks and opportunities in the insurance sector More information about the Centre for Climate Change Economics and Policy can be found at: http://www.cccep.ac.uk. The Grantham Research Institute on Climate Change and the Environment was established by the London School of Economics and Political Science in 2008 to bring together international expertise on economics, finance, geography, the environment, international development and political economy to create a world- leading centre for policy-relevant research and training in climate change and the environment. The Institute is funded by the Grantham Foundation for the Protection of the Environment and the Global Green Growth Institute, and has five research programmes: 1. Global response strategies 2. Green growth 3. Practical aspects of climate policy 4. Adaptation and development 5. Resource security More information about the Grantham Research Institute on Climate Change and the Environment can be found at: http://www.lse.ac.uk/grantham. This working paper is intended to stimulate discussion within the research community and among users of research, and its content may have been submitted for publication in academic journals. It has been reviewed by at least one internal referee before publication. The views expressed in this paper represent those of the author(s) and do not necessarily represent those of the host institutions or funders. Climate Variability, Child Labour and Schooling: Evidence on the Intensive and Extensive Margin1 Jonathan Colmer London School of Economics Abstract How does future income uncertainty affect child labour and human capital accumulation? Using a unique panel dataset, we examine the effect of changes in climate variability on the allocation of time among child labour activities (the intensive margin) as well as participation in education and labour activ- ities (the extensive margin). We find robust evidence that increased climate variability increases the number of hours spent on farming activities while re- ducing the number of hours spent on domestic chores, indicating a substitution of time across child labour activities. In addition, we find no evidence of cli- mate variability on enrolment decisions or educational outcomes, suggesting that households may spread the burden of labour across children to minimise its impact on formal education. (JEL: D13, O12, J13, J22, Q54.) 1First draft: June 2012. Colmer: Grantham Research Institute and Department of Geography and Environment, London School of Economics, Houghton Street, London, WC2A 2AE, UK. E-mail address: [email protected]. I am grateful to Gharad Bryan, Antoine Dechezlepr^etre,Jon de Quidt, Greg Fisher, Maitreesh Ghatak, Ben Groom, Sol Hsiang, Rob Jensen, Kyle Meng, Anthony Millner, Eric Neumayer, Munir Squires and seminar audiences at the London School of Economics, Columbia University, the EfD 6th Annual Meeting, the 20th Annual Conference of the European Association of Environmental and Resource Economics, and the European Economic Association, for helpful thoughts, comments and discussions. This work was supported by the ESRC Centre for Climate Change Economics and Policy and the Grantham Foundation. The data used in this article were collected by the University of Addis Ababa, the International Food Policy Research Institute (IFPRI), and the Centre for the Study of African Economies (CSAE). Funding for the ERHS survey was provided by the Economic and Social Research Council (ESRC), the Swedish International Development Agency (SIDA) and the United States Agency for International Development (USAID). All errors and omissions are my own. 1 Introduction While it is clear that income shocks cause significant welfare effects ex post, there is a paucity of evidence demonstrating how future income uncertainty can affect economic outcomes ex ante. This paper examines how future income uncertainty, proxied by climate variability, affects household investment deci- sions through the channels of child labour and human-capital accumulation in rural Ethiopia { one of the least developed countries in Africa, characterised by a high vulnerability to climate change and variability. If households are limited in their ability to mitigate the effects of shocks, then expectations about the incidence of future shocks, as well as the incidence of shocks, may lead them to sacrifice valuable investments with long-run impli- cations to meet short-run needs (Udry, 1994; Jacoby and Skoufias, 1997; Duflo, 2000; Maccini and Yang, 2009; Banerjee and Mullainathan, 2010). Even in developed countries, it has been shown that around half of the inequality in the present value of lifetime earnings is due to factors determined by the age of 18 (Cunha and Heckman, 2007; 2008). The motivation of this paper is two-fold. First, we want to understand how uncertainty affects investment decisions { a question that presents a number of measurement and identification issues. Secondly, we want to better under- stand how environmental quality affects investment decisions, specifically, how climate can influence decision-making and economic outcomes. We examine the impact of future income uncertainty on the labour supply of children { a risk-management strategy { and the trade-off between time spent working and educational attainment. This is the first paper to consider how future income uncertainty affects the risk-management strategies of rural households on both the intensive margin (the allocation of time to different child labour activities) and extensive margin (enrolment and labour participa- tion decisions.)2 2Fitzsimons (2007) and Kazianga (2012) consider how households respond along the extensive margin to perceived future risk using cross-sectional data and different identifica- tion strategies; however, no detailed empirical analysis of either the intensive and extensive margin has been conducted using panel data, allowing us to control for time-invariant het- 1 Our results add to the growing literature exploring climatic influence on economic outcomes (Barreca et al. 2013; Burgess et al. 2011; Deschenes and Greenstone, 2007; 2011; 2012; Dell, Jones and Olken, 2009; 2012; Fischer et al., 2012; Graff Zivin and Neidell, 2010; Graff Zivin et al., 2013; Guiteras, 2009; Hsiang, 2010; Schlenker and Roberts, 2009) as well as the literature looking at the impacts of risk on educational outcomes (Fitzsimons, 2007; Kazianga, 2012). Using two rounds of individual-level panel data, combined with a new data set of village-level meteorological data, we exploit exogenous variation in future income uncertainty to examine the relationship between climate variability and child labour. We observe that an increase in future income uncertainty results in a sub- stitution of child labour across activities, from labour in the home to labour on the farm, i.e., adjustment on the intensive margin. However, in contrast to the previous literature examining the effects of ex ante risk on human capital in- vestments (Fitzsimons, 2007; Kazianga, 2012), we find no evidence to suggest that climate variability decreases the likelihood that children attend school or affects educational attainment, indicating the potential for omitted-variable bias due to unobserved individual heterogeneity. We demonstrate the impor- tance of controlling for time-invariant omitted variables through replicating the results of these previous studies using individual cross-sections. Our results can be interpreted as causal effects, conditional on the assump- tion that our measure of climate variability affects child labour and schooling only through uncertainty about future states of the world. In order to support this assumption, we show that our results are robust to controlling for past and contemporaneous rainfall shocks and other time-varying factors which may be correlated with our measure of income uncertainty, as well as time-invariant unobserved heterogeneity at the village level. Alem and Colmer (2013) also demonstrate rigorous evidence supporting the plausibility of this measure in an examination of the impact of income uncertainty on experienced utility in rural Ethiopia. erogeneity. 2 We also present the results from a series of placebo and robustness tests used to disentangle the effect from other confounding factors and provide sup- porting evidence for the main identification assumption.3 This narrative is distinct from the literature, which has focussed on child labour and reductions in human capital investments as an ex post response to adverse shocks (Jacoby & Skoufias, 1997; Jensen, 2000; P¨ortner,2001; Ranjan, 2001; Sawada & Lokshin, 2001; Bhalotra & Heady,
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