Despite extensive study in the past decades, we are still far from precisely understanding how households allocate resources between children, and the number of determinants of schooling found in the literature suggests that the decision is a complex one. The natural starting point is Becker (1965, 1981) who defined a human capital investment model according to which parents invest in their children’s human capital until the marginal return equals the marginal cost. In the absence of credit constraints, this implies that parents continue to invest in children as long as their return exceeds the market interest rates. With credit constraints, the market interest rate is replaced by the interest rate at which parents can borrow. The early versions of the investment model assumed that all children in a household faced equal returns to education, and therefore received equal shares of educational resources from parents. Even with different endowments but under child-neutral preferences, as long as costs of quality improvements (increased educational attainment) are linear, parents will adopt compensating behavior so as to equalize educational attainment among children. The focus on parental preferences was intensified in later work by Behrman, Pollak, and Taubman (1982). They develop two models, oneseparable earnings-bequest model where parents’ preferences over children’s earnings distribution are supposed to be independent from their preferences over bequest.
An alternative, the wealth model, instead worries about final future income and bequests are a way of compensating for earnings differentials. The wealth model therefore explicitly supposes transferable utility over the lifetime. In that case, even with perfect access to credit, it makes sense for parents to educate their children according to ability, maximizing total household income and then distributing it between children according to preferences.
Both of the above frameworks however assume that child earnings are separable from parental consumption in parental utility functions, a somewhat problematic assumption in the context of a low-income country with extended family living together, and where every member is contributing to household income. In situations where households are constrained to choose between schooling and child labor, the choice of sending children to school directly affects parental consumption. The investment in a child’s education implies foregone consumption in the present, since it reduces the time the child can allot to work. Low-income countries also differ from high-income countries in another important aspect: formal social safety nets are to a larger extent missing, and households often rely on market labor and domestic production simultaneously. When ability differs between children, parents can opt for specialization (as long as the cost of education is linear),
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having the most educated and able children do market work, and the least educated ones stay in the household. Increasing returns to occupations has been used to rationalize the labor division within couples. Becker’s model of couple’s labor supply (Becker 1981) for example argues that these increasing returns suffice to make two identical household members specialize in opposite occupations (such as home production and market work).
If any member has an innate comparative advantage in one activity, that member should specialize in that activity. Becker somewhat controversially argued that biological differ-ences cause women to have a comparative advantage in home production—a comparative advantage that is amplified by investments in home production skills that are rewarded in the marriage market (Altonji and Blank 1999). Gronau (1977) develops a model in which a one-person household chooses between leisure, market work and home production according to exogenous parameters such as the wage. In his general model, an increase in wages is always associated with a decrease in home production, since through a wage increase the time cost of market goods decreases, as does the value of home production.
Wage increases are thus associated with shifts from domestic production to market work.
Extending this model to a multi-person household would imply that two adjustments operate if education indeed increases the return to market work but not to work in the family business: households should decrease the share of work in family business, and relatively educated members should dedicate less time to the family business and more to market work. The opposite should be true for the relatively uneducated members.
In general, when markets are imperfect and resources limited, siblings compete for resources within households. Such sibling rivalry has been studied empirically in several developing countries, focusing on birth order, family size and gender. Garg and Morduch (1998) study child health outcomes in Ghana from the perspective of sibling rivalry, arguing that in pro-male bias societies, there are gains to having relatively many sisters rather than brothers. This gender gap may increase or decrease with income, depending on the shapes of the gender-specific health return curves. If the functional form is such that marginal returns converge, the gender gap is bound to close as income rises.
In fine, the theoretical predictions from a scenario in which there is an exogenous increase in the education of one child hinge on assumptions about: parental preferences, which can be egoistic or altruistic (if altruistic, they can be child-neutral, or exhibit preferences for specific children, such as boys); credit constraints: in the presence of credit constraints, scarce resources may imply that low birth rank children may have been able to get educated, while younger children may not, since the older children were relatively
Table 14: Potential impacts of an exogenous shock to younger siblings’ (A) education
Channel Effect on older siblings’ (B)
market work Mechanism
Specialization Decrease
The relative market return of sibling B is decreasing in sibling A’s educational attainment. The household resorts to occupational specialization and lowers B’s amount of market work in favor of work in the household.
Income effect Decrease Sibling A’s earnings suffice for the
fam-ily and B does no longer need to work.
Rivalry Increase/decrease
Sibling A’s education improves his/her bargaining power, leading him/her to choose what occupation he/she is af-fected to.
Spillover effects Increase
Sibling A’s education brings beneficial job opportunities for B, shifting B into the labor force.
Resource constraints Increase
Sibling B is induced to work to finance sibling A’s education.
Once at work, sunk costs may lead him/her to stay there.
fewer to share the household’s resources. This relationship may also be non-linear, since when older siblings grow old enough their market work may allow for younger siblings to stay in school (Emerson and Souza 2008). Finally, parents may be concerned with equality in different outcomes. Whether what matters is the ultimate wealth (or, even more vaguely, utility) or rather the earnings capability of siblings also has implications on the predictions39.
While it would be reductive to ignore household allocation effects in the analysis of occupational destinies, assuming that it is the only mechanism at play would surely be as reductive. When social networks act as information conduits and/or a basis for referral, employment prospects can be improved for network members. Sidestepping household specialization effects, having a more educated sibling could then be associated with better labor market outcomes. According to Kuzubas and Szabo (2016), who rely on data from the Indonesian Family Life Survey, 85% of unemployed in Indonesia in 2007 used family and friends in their job search, and 55% used only this method. Referrals are an important channel through which vacancies are filled, since it theoretically provides a
39As an additional side note, the hypothesis of no child bargaining is most likely unrealistic, especially when children are adults. Yet, few studies have taken into account children’s utility (a notable exception is Lundberg, Romich, and Tsang (2009))
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possibility for employers to uncover unobservable information on quality that is shared within members of the social network. Di Gropello, Kruse, and Tandon (2011) conclude that 80% of Indonesian firms use private networks to fill vacancies, followed by 50%
using employee recommendations. The multitude of potential channels between sibling education and occupations does not dictate a single theoretical framework, and as many previous studies (Garg and Morduch 1998; Morduch 2000; Ota and Moffatt 2007), this ar-ticle takes an empirical stance. Table 14 sums up the potential channels through which an increase in younger siblings’ education can modify the occupation of his/her older siblings.