Household vulnerability and child labor: the effect of shocks, credit rationing, and insurance

In this paper, we use a unique data set for Guatemala to estimate the effect of idiosyncratic shocks and credit constrains on children’s labor supply and schooling decisions. We extend Rosenbaum and Rubin (J R Stat Soc B 45:212–218, 1983b) analysis to the case of a multinomial outcome by proposing an innovative sensitivity analysis to assess the robustness of the estimates with respect to the presence of unobservables. The results show that credit rationing is an important determinant of school enrollment and children’s work. Exposure to negative shocks also strongly influences household decisions and pushes children to work, while access to coping mechanisms, like insurance, tends to increase education and to reduce child labor.