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Higher incomes are generally thought to increase human capital investment. Yet recent evidence from has shown that increases in low-skill wages can decrease school enrollment. We examine the impact of an increase in the demand for low-skill labor caused by a large public works program (NREGS) on schooling outcomes. Exploiting the staged rollout of the program for causal identification, we show exposure to workfare decreases enrollment by 3.2 percentage points amongst adolescents, and increases child labor by 3.7 percentage points. While the impacts of NREGS on human capital are similar for boys and girls, we show that adolescent boys are primarily substituting into market work when they leave school while adolescent girls are primarily substituting into unpaid domestic work. We also find evidence that children exposed to the program in utero to age 4 do benefit later in life with better human capital outcomes. We conclude that the opportunity cost of schooling is an important determinant of educational investment.

Manisha Shah is Vice-Chair and Professor of Public Policy at the UCLA Luskin School of Public Affairs. She is also a Faculty Research Associate at the National Bureau of Economic Research, a Faculty Affiliate at UC Berkeley’s Center for Effective Global Action, The Abdul Latif Jameel Poverty Action Lab, and The Bureau for Research and Economic Analysis of Development, and a Research Fellow at the Institute for the Study of Labor. She received her Ph.D. in agricultural and resource economics from UC Berkeley.

Shah is a development economist whose primary research and teaching interests lie at the intersection of applied microeconomics, health, and development. She has written several papers on the economics of sex markets in order to learn how more effective policies and programs can be deployed to slow the spread of HIV/AIDS and other sexually transmitted infections. She also works in the area of child health and education. Shah has been the PI on various impact evaluations and randomized controlled trials and is currently leading projects in Tanzania, Indonesia, and India. She has also worked extensively in Ecuador and Mexico. Her research has been supported by Bill and Melinda Gates Foundation, William and Flora Hewlett Foundation, the World Bank, and the National Science Foundation among others.