The Effect of Parental Job Loss on Child School Dropout: Evidence from the Occupied Palestinian Territories

This paper explores how negative economic shocks affect household schooling decisions in the context of a developing country. In particular, we study the effect of parental job loss on child school dropout using data from the Occupied Palestinian Territories (OPT). Our analysis focuses on Palestinian workers employed in Israel during the Second Intifada (2000-2006), whose job separation is arguably involuntary as determined by the intensity of the conflict. We employ an instrumental variable strategy and use individual's exposure to conflict as a plausibly exogenous source of variation in the employment status. Our results show that parental job loss increases child school dropout probability by 9 percentage points. The effect varies with the gender and the academic ability of the child, with the level of parental education, and the number of children in the household. We find evidence suggesting that the effect operates through the job loss-induced reduction in household income. We exclude alternative mechanisms such as family disruption or household relocation.