Effects of School Reform on Education and Labor Market Performance: Evidence from Chile's Universal Voucher System

Authors

David Bravo, University of Chile
Sankar Mukhopadhyay, University of Nevada – Reno
Petra E. Todd, University of Pennsylvania

Abstract

This paper studies the effects of school reform in Chile, which adopted a nationwide school voucher program along with school decentralization reforms 28 years ago. Since then, Chile has had a relatively unregulated, competitive market in primary and secondary education and therefore provides a unique setting in which to study how these reforms affected educational attainment and labor market outcomes. This paper develops and estimates a dynamic model of school attendance and work decisions using panel data from the 2002 and 2004 waves of the Enquesta Proteccion Social (EPS) survey. Some individuals in the sample completed their schooling before the voucher reforms were introduced, while others had the option of using the vouchers over part or all of their schooling careers. The impacts of the voucher reform are identified from differences in the schooling and work choices made and wage returns received by individuals differentially exposed to the reforms. Simulations based on the estimated model show that the voucher reforms significantly increased the demand for private subsidized schools and decreased the demand for public schools. It increased high school (grades 9-12) graduation rates by 3.6 percentage points and the percentage completing at least two years of college by 2.6 percentage points. An examination of distributional effects indicates that individuals from both poor and non-poor backgrounds on average benefitted from the reforms and that the reform led to a modest reduction in earnings inequality.