How Universal School Vouchers Affect Educational and Labor Market Outcomes: Evidence from Chile

This paper studies the effects of school vouchers in Chile, which adopted a nationwide school voucher program 28 years ago. Chile has a relatively unregulated, decentralized, competitive market in primary and secondary education and therefore provides a unique setting in which to study how voucher programs affect school choice as well as educational attainment and labor market outcomes. This paper develops and estimates a dynamic model of schooling and work decisions using data from the 2002 Historia Laboral y Seguridad Social and the 2004 Enquesta Proteccion Social (EPS) surveys. The dataset includes rich demographic information as well as contemporaneous and retrospective schooling and work information covering a thirty-five year time frame. Some individuals in the sample completed their schooling before the voucher program was introduced, while others had the option of using the vouchers over part or all of their schooling careers. The impacts of the voucher program are identified from the differences in the schooling and work choices made and wage returns received by individuals differentially exposed to the program. Simulations based on the estimated dynamic model indicate that the school voucher program induced individuals affected by the program to attend private subsidized schools at a higher rate, achieve higher educational attainment, receive higher wages and participate more in the labor force. Returns to both public and private education increased after the introduction of vouchers. An examination of distributional effects shows that the voucher program benefitted individuals from both poor and non-poor backgrounds, but that the non-poor experienced greater benefits.