|Title||The effect of adult returns to schooling on children’s school enrollment, theory and evidence from South Africa|
We study how the returns to education in the adult labor market affect children’s school enrollment. We show that when families are liquidity constrained, the expected relationship between higher returns and children’s schooling is ambiguous. When liquidity constraints matter, the relationship can only be assessed empirically. For most African South African liquidity-constrained households, we find a positive relationship that is quite robust. Our results suggest that the appropriate policy focus to raise children’s school enrollment in these households is on initiatives that raise the returns to education in the adult labor market, and that ease current “cash flow” problems. We see no reason to focus on other specific characteristics of the households or children, except perhaps gender.