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Watch Shay Tsur, an economist at the research department describe​s the main​​

·   The research examines the effect of increasing the child allowances that
were paid to Arab families in the 1990s on the schooling rates of Arab youth
aged 16–17.

·    The main finding of the research is that the increase in the allowances
led to an increase in school attendance of girls from a low socioeconomic
background. The impact of the increased allowances on school attendance of boys
is not statistically significant.

·    The research’s conclusion is that direct transfer payments to poor
families with children are likely to contribute to an increase in human capital
accumulation.

 

New
research conducted by Shay Tsur from the Bank of Israel Research Department
finds that an increase, in the middle of the 1990s, in child allowances paid to
Arab families led to an increase in their children’s high-school attendance
rates. Until 1993, only families headed by an “army veteran” and ultra-Orthodox
families headed by someone studying full time in a religious institution
benefited from increased child allowances for the fourth child—under the age of
18—and upward. In 1994, gradual implementation began of a process to equalize
the child allowances received by families that had not benefited from that
status until then, the vast majority of which were Arabs. The research utilized
the fact that the policy change focused on families with four or more children
(Figure 1), and compared school attendance of youth aged 16-17 (grades 11-12)
from those families, to attendance of the similar cohort from families with
only three children. The sample included about 2,700 youth from Arab families
that participated in the Labor Force Survey of the Central Bureau of Statistics
in 1989–97.

 

The
research found that in the years when child allowances increased in a manner
that benefited, as noted, mainly Arab families with four or more children, the
gap in schooling rates, which was to the detriment of youth from those families
vis-à-vis youth from Arab families with only three children under age 18, was
narrowed (Figure 2). In particular, while attendance rates of girls from
families with three children declined slightly in the years of implementing the
policy (1994–97), the attendance rates of girls from families with four or five
children (at ages that were eligible for the child allowance) increased
markedly. Among boys, attendance rates declined sharply in families with three
children, and declined by a much more moderate rate among families with four or
five children.

 

A multivariate
statistical analysis found that most of the increase in school attendance
occurred among girls. An increase of about 7 percent in family income led to an
increase of 14 percent in their schooling rates. Most of the increase in
schooling rate reflected a decline in the share of girls who did not work for a
salary and did not study in school, and in addition the employment rate
declined among girls of those ages from levels that were already low, at 3
percent, to near zero. A detailed analysis found a particularly large impact
among girls from households with children below age 9. This finding indicates
that the allowances helped in finding an alternative solution in cases where
girls helped maintain the household and where they provided childcare for their
younger siblings, such that the possibility increased for those girls to
persist in their studies.

 

A
cost-benefit analysis can likely explain why the policy change impacted mainly
girls and not boys: On the cost side, while the employment rate of boys in the
treatment group was 11 percent before the policy change, the employment rate
for girls was 3 percent. While boys who worked contributed about 30 percent to
household income, the few girls who worked contributed less than 20 percent to
income. The child allowance for families with 5 children increased by about 8
percent (relative to household income), and this share was apparently too low
to compensate boys for the switch from employment to schooling. On the benefit
side, an addition of one year of schooling for Arab women was correlated in
those years with a wage increase of about 10 percent, while the expected addition
for Arab men was only about 4 percent. That is, both sides of the cost-benefit
analysis support an increase in years of schooling for girls, and much less so
for boys.

 

Economic
research worldwide indicates that financial constraints in the short run are
liable to lead children and youth to stop their studies, even if the long term
return to schooling is greater than, for example, the return on entering the
work force as a teen-ager. The current research’s findings indicate that direct
transfer payments to poor families with children are likely to ease those
financial constraints and thus lead to making efficient decisions that
accelerate the young generation’s accumulation of human capital. It is
difficult to reach a conclusion, based on the research, about the overall
efficiency of child allowances (which in the meantime have been reduced
sharply, beginning in 2003) as a tool to reduce poverty, since these allowances
are likely to reduce parents’ incentive to work, and influence family size.
However, a policy tool that does not negatively impact the incentive to work,
such as the Earned Income Tax Credit (negative income tax), is consistent with
the research’s findings, as its positive effects on children’s schooling will
not be offset by the negative effect on parents’ employment.