Education and the Informal Sector : Evidence from Venezuela and Brazil.

Summary The main objective of this research is to empirically analyze, using a novel and robust approach, the determinants of school attendance, the role of the informal sector in school dropout, and the links between youth work and productivity in small firms. First, we are interested in determining the magnitude of private returns to education in Venezuela. To do so, we use repeated cross-section data from the household survey. The disadvantage of using pseudo-panel data is the high presence of measurement error. We address this problem through the use of the instrumental variables method based on empirical moments of order greater than two. Subsequently, we seek to understand the causes of dropout in secondary education in Venezuela. Our contribution to the dropout literature is twofold. First, the inclusion of informality (represented by the parents of youths who are moonlighting) as one of the main factors that affect the likelihood that children will graduate from high school. Second, the use of panel data in the assessment of the high school dropout problem provides new and more robust insights into Venezuela's educational bottlenecks. The econometric approach is based on the use of Mundlak corrections to eliminate endogeneity bias. Finally, we analyze the effect of young workers on the productivity of unregistered small firms in Brazil. We use the instrumental variable method to ensure that our results are not biased.