Impact of economic situation on availability of secondary education in Indonesia

School transition is an important time for children, families, and school communities. Research suggests that children who make a smooth transition and experience early school success tend to maintain higher levels of social competence and academic achievement1. Meanwhile, the school transition has been identified as a crucial turning point in school progress in Indonesia. Human capital investment in education is one essential component for the economic and social development of a country as education is one of the vital strategies to overcome poverty in most developing countries. If there is a decrease in the quality of human capital, it will be likely to have both direct and indirect consequences to the level of social welfare, poverty and economic development of a country. One of the problems of the decline in human capital investment in developing countries, including Indonesia, is the vulnerability of various risks associated with the shocks leading to high levels of volatility in income resulting in low levels of school enrolment, school transition and high level of dropout.

Generally, household options regarding education investment in addressing negative income shock can be divided into two. First, when households are faced with negative shocks, then the parents will encourage their children to be involved directly in activities that can generate income for the family making time allocated for education relatively small [1]. In this case, if the time allocation can be done optimally, it can reduce the level of school attendance without increasing dropout rate. Second, the presence of negative shocks will have an impact on the level of participation in education, either temporarily or permanently forcing parents not to send their children to school [2].

Some of the events in Indonesia with risks associated to negative income shocks on human capital investment are El Nino disaster, the Indonesian mid-1997 economic crisis, the death or the prolonged illness of the household head or household members, the loss of household business due to natural disaster, the loss of jobs and the decline of household incomes caused by natural phenomena such effects of weather, locust, etc. Furthermore, another issue of concern in many developing countries associated with negative income shocks is the widening gender disparities among boys and girls to school participation rates, including school transition. Finally, another critical issue is the presence of resource competition among siblings in the household when it comes to borrowing constraints condition and credit market imperfections.

Several studies on the effect of negative shocks to investment in human capital, especially in the field of education, involve a variety of different empirical results. Sawada showed that permanent and transitory incomes affected schooling decision process for school entrants and dropouts in Pakistan [3]. Subsequently, schooling response to transitory income is consistently larger for daughters than sons; followed by resource competition. Chevalier et al showed that permanent income had a significant effect on children schooling in the UK, with stronger effects on sons than daughters [4]. Several empirical studies in Indonesia, among others, performed by Thomas et al. identified that during the economic crisis in Indonesia, the participation rate of young children’s education is relatively low if it had older siblings [5]. Cameron and Worswick showed that the coping strategy taken by farming households during income shocks was to reduce children education expenditure, especially girls of school age [6].

Many empirical studies show different results about the effect of income on the school attendance. McKenzie and Skoufias & Parker showed that the rate of school attendance was increasing during the crisis in Mexico [7; 8]. King received results indicating that the per-capita education expenditures declined in Indonesia following the crisis in the late 1990s, but the dropout rate did not increase2. Meanwhile, the rate of high school graduation and participation rose during the Great Depression in the United States [9; 10]. Several studies showed contradictory findings of the impact of negative income shocks to the level of child’s education, with one side having a negative effect, but in some cases, also positive effect. In addition, there is still the debate on the issue of gender inequality in school transition, therefore, this study aims to analyze the role of income, gender against the school’s transition in Indonesia.

This study contributes an empirical measurement and identification of transitory income. The previous study used rainfall deviation as a transitory variable [11; 12]. Meanwhile, transitory income shocks measurements in this study include the death of the head of household or household members, crop loss, prolonged illness of the household head or household members that require hospitalization or continuous need of medical care, loss of business and household sectors (due to fires, earthquakes and other disasters), unemployed household head or business failure, and the decline in household income due to falling prices or quantity of goods produced.

Materials and Methods

Empirical studies of income effect on human capital investment have long been of interest to economists and policymakers as it involves data, empirical results, and different approaches. Sawada conducted a study on the role of permanent and transitory income on investment in education using household panel data in Pakistan from the International Food Policy Research Institute (IFPRI) Pakistan Food Security Management Project from 1986 to 1991 [3]. The data is taken from the household survey of 3 (three) poor districts with conditional fixed effects model to estimate education investment with school attendance model and school dropout model. The results indicate that transitory income has more influence on the behavior of school attendance and dropout rate than permanent income. The study also shows gender disparities, with more detrimental effects for girls. Also, households with borrowing constraints caused by market imperfections lead to resource competition among siblings in a household.

The study results are in line with the works of Cameron and Worswick in Indonesia, and Gubert & Robilliard in Madagascar which both state income shocks have a more negative impact on girls than boys [6;

King differs with previous studies which state school attendance rate increases during economic shocks3. The results of King’s study indicate that education expenditure per capita has continued to decline during economic crisis in Indonesia, but the dropout rate is not increased, and attendance does not decline. This is due to the natural stickiness factor in school attendance rates in the short term and the desire of parents to protect education in- vestment for older children. The findings contradict a previous study in Indonesia, which states that income shocks negatively impact school attendance rate.

McKenzie examines the impact of the peso crisis in Mexico in 1995-1996 to school attendance rate using the differ-ences-in-differences approach [7]. The data was derived from the survey of the Encuesta Nacional de Ingresos y gastos de los Hogares household in 1992, 1994, 1996 and 1998 to estimate the effects of the economic crisis on the school level. The results showed that the level of school attendance increased for children aged 15-20 years during the crisis compared to the period before the crisis. Shocks aggregate give opposite effect on the income effect and substitution in determining the children’s school and work behavior. The results contradict with previous studies stating shocks income have a positive impact on the level of school attendance [1; 2; 5; 6].