Using Human Capital Enrichment to Reduce Poverty and Inequality: The Case of Oportunidades in Mexico

Douglas McKee, University of Pennsylvania
Petra Todd, University of Pennsylvania

Recent evaluations of the Oportunidades schooling and health subsidy program in Mexico have demonstrated statistically significant positive impacts on schooling and health outcomes. This paper adapts methods developed in Dinardo, Fortin and Lemieux (1996) for use in studying how these schooling and health impacts will affect the future earnings distributions of cohorts recently exposed to the program. The method nonparametrically simulates earnings distributions, with and without the program, and quantifies resulting changes in mean earnings, poverty and earnings inequality. It is well recognized that the Oportunidades program has reduced poverty and inequality of the current generation through its targeted cash transfers. This paper finds that by enriching human capital, as measured by schooling and height, the program will also generate increases in future earnings. However, it will achieve only modest reductions in poverty and overall earnings inequality.