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Child labor is still a cause of public concern. This research paper focuses on the relationship between poverty and child labor. Many children work to ensure the survival of their families and themselves. Furthermore, child labor today leads to poverty tomorrow: child labor perpetuates poverty and results in intergenerational poverty traps. Yet, policies banning child labor, even if they can be implemented, might harm the welfare of children and their families rather than help. This is why devising effective policies to address child labor is a challenging task and needs to tackle the root cause of the problem.
- What Is Child Labor?
- Why Is Child Labor a Cause for Public Concern?
- Poverty and Child Labor
- Are Poor Households Acting Rationally?
- Poverty Trap
- What Are the Main Policy Implications?
Child labor is still a cause of public concern in the twenty-first century. Recent estimates by the International Labor Office (ILO) indicate that there were about 168 million child laborers, aged 5–17 years, worldwide in 2012. Almost half of these children, around 85 million, work long hours under hazardous conditions. About 4 in 10 child laborers were younger than 12 years old (73 million). However, not all children work is seen as problematic, only when children employment interferes with the children’s education and welfare that it is referred to as child labor. So, if child labor is a concern, what could be done about it?
Although this might seem to be a straightforward question, answering it is not so straightforward. In order to address the problem of child labor, it is necessary to understand the circumstances that lead children to work. Many economists believe that poverty is the main reason behind child labor. Many children work to ensure the survival of their families and themselves. However, child labor today, leads to poverty tomorrow. Child labor perpetuates poverty and results in intergenerational poverty traps. Yet, policies banning child labor, even if they can be implemented, might harm the welfare of children and their families rather than help. This is why devising effective policies to address child labor is a challenging task and cannot be done in isolation but has to tackle the root cause of the problem.
This research paper will examine the intricate relationship between poverty and child labor, and assess alternative policies to address child labor when children are driven to work by poverty. Section What Is Child Labor? will provide an overview of the linkage between poverty and child labor. Section Poverty Trap will examine the impact of child labor on poverty persistence, while Section What Are the Main Policy Implications? will evaluate the effectiveness of various policy recommendations to address child labor. Section Conclusion concludes.
What Is Child Labor?
Not all work done by children is classified as child labor. According to the ILO’s Statistical Information and Monitoring Program on Child Labor (SIMPOC) ‘child labor’ is work that deprives children of their childhood, their potential and their dignity, and that is harmful to physical and mental development. Labor that jeopardizes the physical, mental or moral well-being of a child, either because of its nature or because of the conditions in which it is carried out, is known as ‘hazardous work.’ The ILO stipulates a minimum age for employment of 15 and 18 years for hazardous occupations and defines child labor by the ILO Minimum Age Convention, 1973 (No. 138) and the ILO Worst Forms of Child Labor Convention, 1999 (No. 182).
Estimating the number of child laborers is a difficult task. The ILO produced new child labor estimates for the year 2012 based on 60 datasets from national household surveys. The new global and regional estimates on child labor benefited from refinements embodied in the Resolution concerning Statistics of Child Labor, adopted by the 18th International Conference of Labor Statisticians (ICLS) in 2008. Based on those estimates for 5–17 years old in 2012, the incidence of child labor was 10.6% worldwide, and has fallen slightly from 14.2% in 2004. As Table 1 shows, based on ILO (2013), that the largest number of child laborers was in Asia and the Pacific (77.7 million), but in relative terms Sub-Saharan Africa had by far the highest incidence rate around 21.4 versus 9.3% in Asia and the Pacific. One in 10 children was child laborer in Latin America and the Caribbean. The ILO estimates show that more boys than girls were engaged in child labor, in absolute and in relative terms.
Table 1. Regional estimates of child labor in 2012, 5–17 years old
Source: ILO, 2013. Global Child Labor Trends 2008 to 2012, International Programme on the Elimination of Child Labor (IPEC). ILO, Geneva, p.10.
The relative level of the child labor by economic activity can vary widely from one country to another. The ILO estimates suggest that child laborers were engaged in all the three broad groupings of economic activity (agriculture, industry, and services). However more than half (60%) were engaged in agriculture, 7% were employed in industry and 26% in services. Two thirds (64 for boys vs 73% for girls) of child laborers were unpaid family workers making any form of intervention very difficult to implement. Paid employment and self-employment accounted respectively for 21 and 5% of all child laborers: only one in five child laborers were in paid employment. The overwhelming majority are unpaid family workers. The vast majority of child labor is found in rural settings and informal urban economy. Participation rates of children in economic activity are on average twice as high in rural communities than in urban centers. See ILO (2013).
Why Is Child Labor a Cause for Public Concern?
Child labor is a cause for concern, not only because of the number of children affected, which is still very high as seen above, but also and more importantly, because of the negative repercussions that starting working life too young has on the personal development of children. There is no disagreement that any type of child labor that involves abusive commercial exploitation of children or hazardous work is harmful and should be eliminated. Yet, when it comes to child labor in nonhazardous work the main concern is that child labor prevents children from receiving education. Low human capital base is the most serious developmental constraint in developing countries. Investments in child schooling add to the stock of human capital, and therefore to future income and living standards for society as a whole. Child labor constrains the children’s abilities to benefit from education and schooling, thereby condemning them to perpetual poverty and low-wage employment.
Poverty and Child Labor
One of the most influential studies on child labor is the article by the Basu and Van (1998) that has spurred a large number of articles. The seminal theoretical article by Basu and Van (1998) argues that household decisions to send their children into employment are driven by poverty. Their model builds on two fundamental assumptions: first that households send children to work only if the adult wage is very low that the household subsistence requirements cannot be met without the income generated by the children- which they referred to as the luxury axiom. In addition, they assumed that adult labor and child labor are substitutes in production- known as the substitution axiom. They concluded that if a labor market is characterized by more than one equilibrium- one in which adult wages are low and children work, and another where adult wages are high and children do not work- banning child labor is a benign policy. But, in very poor countries, where there is only one labor market equilibrium at which adult wages are low, banning child labor can worsen the households’ welfare.
This research paper has prompted a substantial body of literature and ignited the interest of many economists in child labor over the last decade aided by availability of large-scale, nationally representative household surveys from developing countries that has enabled more rigorous studies of this complex issue. Many believe that poverty is the main cause of child labor. However, the empirical evidence on the causal impact of poverty on child labor fails to consistently find a negative relationship between household income and child labor. For example, Ray (2000) fails to find positive relationship between child labor and poverty in Pakistan. As discussed by Edmonds (2008), there are two fundamental problems in studying the impact of poverty on child labor which are responsible for the lack of consistent relationship. First, poor households differ from rich households and those differences in many cases are due to reasons associated with child labor. Hence, disentangling these omitted factors from the underlying causal relationship is empirically difficult. Secondly, the relationship between household income and child labor is a two-way one where household income affects child labor but child labor affects household income as well. Thus the second challenge is to control for the endogeneity between household income and child labor.
Studies that use panel data and track children in the same household over time consistently find that large increases in child labor are associated with substantive declines in household incomes. For example, Beegle et al. (2006) track children over a 3-year period in rural Tanzania and find that children tend to work when households experience unexpectedly poor harvest, and that children stop working when households recover from the bad harvest. Also, Duryea et al. (2007) find that child labor increases during adult unemployment spells in urban Brazil. Edmonds (2005) using a panel dataset of Vietnamese households from 1993 to 1997 finds that improvements in per capita expenditure explain 80% of the decline in child labor.
Some studies have taken a different approach by focusing on market wages as opposed to parents’ wages or income. As discussed above, Basu and Van (1998) stress the role of adult market wage; they assume that households send children to work only if the adult market wage is very low and as the wage rise they withdraw their children from the labor force. Thus, the elasticity of child labor supply to adult market wages is important in particular for policy formulation. Wahba (2006) finds support for this hypothesis, examining the relationship between adult market wages and child labor in Egypt and finds that a 10% increase in the illiterate male market wage lowers the probability that a child engages in wage work by 22 for boys and 13% for girls.
Another contentious issue in the empirical evidence on the relationship between household income and child labor is what Bhalotra and Heady (2003) refer to as the wealth paradox where they find a positive correlation between market work participation and household assets. Since land is usually strongly correlated with a household’s income, this seems to challenge the presumption that child labor involves the poorest households. Basu et al. (2010) argue that the missing ingredient may be an explicit modeling of the labor market. They develop a simple model which suggests the possibility of an inverted-U relationship between land holdings and child labor. Using a unique data set from India, that has child labor-hours they find that, controlling for child, household and village characteristics, the turning point beyond which more land leads to a decline in child labor occurs around 4 acre of land per household. Thus taking into account the nonlinear relationship between household’s income and child labor explains this wealth paradox.
Households also may send children to work not only in order to augment household income but also to manage better the income risk they face. Child labor can be part of a strategy to minimize the risk of interruption of a household’s income stream and hence to reduce the potential impact of job loss by a family member or of failed harvest for example. More importantly, because of capital market imperfection in developing countries, poor households cannot borrow to manage during the bad times and in many cases they have to rely on their children’s earnings for survival, see e.g., Baland and Robinson (2000). For example, Dehejia and Gatti (2005) find a negative relationship between child labor and access to credit, where access to credit is proxied by the extent of financial development.
Meanwhile at the macrolevel, there is a debate on whether international trade and globalization reduces or increases child labor. A common argument in the child labor literature is that foreign trade, and globalization in general, increases child labor by increasing the demand for goods produced by children. See Edmonds (2008) for an extensive summary of this literature. For instance, Edmonds and Pavcnik (2007) study the relationship between trade liberalization (measured as the change in the relative price of an exported commodity) and child labor using household level data from Vietnam. They find that higher rice prices are associated with declines in child labor, suggesting that in this case greater market integration is associated with less child labor, not more. Fafchamps and Wahba (2006) show that children living in or around cities work more for the market in the form of wage work or small business employment. The increased intensity of market exchange associated with cities thus appears to be empirically correlated with an increased involvement of children in market-related forms of work. At the same time, work by children on the family farm and on household chores falls dramatically with proximity to urban centers. These results suggest that urban proximity in Nepal is associated with an improvement in child welfare – at least as far as total child labor and education are concerned.
There are potentially many other determinants for child labor besides poverty. One strand of the child labor literature focuses on the lack of availability of good schools. The overall condition of the education system can be a powerful influence on the supply of labor. The failure of the education system may lead many parents to view work as the preferred option for their children because education is no longer a road toward obtaining a degree and a civil service job. In addition, traditional factors such as rigid cultural and social roles further limit educational attainment and increase child labor. Another strand of the literature pushes sociodemographics, family characteristics and social norms as important determinants of child labor. Parents’ education play an important role: educated parents are less likely to send their children to work. The child’s age, gender, and birth order also affect child labor. Furthermore, cultural factors matter, so there is a huge variation among patterns and incidence of child labor in different countries that stem from cultural and social norms and traditions.
Are Poor Households Acting Rationally?
One might ask, are poor households acting rationally by sending their children out to work? Well, to be able to answer that question, let’s consider a very simple model of household time allocation. Let’s assume that a child can allocate his/her time between three activities: schooling, work, and leisure. The family allocates the time of its children to wherever the perceived private return is highest. The decision by any family to send his or her child to school or to work depends on the private benefits and costs. First, let’s consider the private returns and costs of schooling. The benefits obtained from education clearly depend on the quality of the education the child is likely to receive and how that education is likely to increase the child’s productivity in the future and therefore his/her future earnings. The overall condition of the education system can be a powerful influence on the supply of labor. Low quality of the education, for example too crowded classes or bad teaching, would reduce the benefits of schooling. As a result, parents may find no use in sending their children to school when they could be home learning a skill (for example, agriculture) and supplementing the family income. Schooling is costly even if it is free (no fees) because there are other direct costs involved, such as books, uniform, and travel. Also, there are indirect costs of schooling; the opportunity cost of child schooling (the loss incurred by a family whose child is in school rather than working) is wage rate earned in the labor market by that child. The higher the opportunity cost of school attendance in relation to a household’s income, the greater the perceived need for the child to work. Schooling problems, such as schools being too far away, would also increase the cost of education and make it unattractive for parents to invest in children schooling.
Families which send their children to school give up short term consumption in favor of investment in human capital of the child, which is likely to pay off in old age. Families which choose to engage their children in paid market work, sacrifice the future of their children, and hence that of their own, in an attempt to raise their current standard of living of the household. Families’ decisions to take a child out of school and send him or her to work is typically a rational decision based on a comparison of the discounted future stream of benefits accruing to the child, and/or household from the child’s education relative to the opportunity cost of the child’s time which is his/her productivity at work, plus the direct costs of education. Poor households are likely to be present-oriented as compared with more well-off households and would be likely to discount the future more than well-off households and are therefore more likely to take their children out of school.
The main concern about child labor is its detrimental effects on schooling. Few studies have examined the dynamics of child labor. For example, Basu (1999) show that child labor, when is undertaken at the expense of human capital formation, would lead to child labor trap: if children work, they will not go to school and will have low human capital. As adults, they will also need to send their children to work thereby perpetuating child labor in the future. Households that are very poor are much more likely to send their children to work, and child labor contributes to poverty in the next generation by reducing schooling attainment. For example, Ray (2003) finds that an additional hour of wage work in Ghana is associated with more than a year’s less completed educational attainment. This circular pattern of positive feedback between poverty and child labor may lead to a vicious cycle of poverty, in which the descendants of the poor remain poor because they were poorly educated. This cycle can be the foundation of a classical ‘poverty trap.’
There is little empirical evidence on the intergenerational transmission of poverty in developing countries, in particular, on how child labor perpetuates poverty from one generation to another, or on how parents who were child laborers are more likely to have their children work as well. Parents who worked as children are more likely to have underinvested in schooling and become poverty-trapped and hence would expect their children to work as well. The relationship between family background, such as race, ethnic origin, religion and in particular education, and child labor is fairly established in the empirical literature. Studies show that a low level of parents’ educational attainment is an important factor in increasing the likelihood of children working.
A few studies have examined the effects of child labor on the children once they become adults. Ilhai et al. (2000) examine the effects of child labor on lifetime earnings and poverty status using retrospective data on adult earnings and information on whether adults worked as children in Brazil. They find that entry in the workforce before age 13 results in a reduction in adult wages of 13–17% and an increase in the probability of being in the lowest two income quintiles of 7–8%. They estimate the effect of child labor both independent of its effect on education and through its effects on education. They find both effects to be significant. They argue that early entry in the labor force reduces years of education and lowers the returns per year of schooling. Similarly, Emerson and Souza (2003) explore the evidence of intergenerational persistence of child labor. They build an overlapping generation model of the household child labor decision to capture a child labor-trap story and then examine the empirical evidence using household survey data from Brazil. They find that adults who worked as children have lower earnings even when controlling for their educational levels and that the likelihood of being child laborer increases the younger the parents entered the labor market. They explain the persistence of child labor above that of parental education and household income, given their theoretical model, to be the result of some unobservable human capital characteristic i.e., human capital accumulation is not determined only by the amount of education but also by maybe the quality of education, the level of education of siblings or the household environment. Wahba (2006) also provides direct evidence on the intergenerational persistence of child labor where she finds that parents who themselves worked as child laborers are more likely to send their children to work in Egypt.
Thus child labor if driven by severe poverty is highly likely to reinforce itself and result in an awful equilibrium of persistent poverty, excessive child labor and low education over generations.
What Are the Main Policy Implications?
Tackling child labor is not straightforward. Various policy options such as banning child labor or trade sanctions, even if they can be implemented, are unlikely to be effective in eradicating child labor. Indeed such policies may even be counterproductive because they would harm the same people they want to protect namely, the poor. Basu and Zarghamee (2009) argue that boycott and trade sanctions may increase child labor. Their argument is that sanctions tend to depress child wages, and that the response of poor families depending on child labor to avert extreme poverty may be characterized by strong income deficits. Doepke and Zilibotti (2009) use a political economy perspective to show that these types of international action on child-labor tend to lower domestic political support within developing countries for banning child-labor. Hence, international labor standards and product boycotts may delay the ultimate eradication of child-labor.
An alternative policy option that is often advocated to address child labor is drawing children into school. To the extent that schooling displaces child labor, policies that affect the costs of or the returns to school might prove effective in reducing child labor. However, Ravallion and Wodon’s (2000) point that increased school enrollment does not necessarily lead to an equal fall in child labor as they find that Bangladesh’s Food for Education program increased school attendance, but reduced the incidence of child labor by only a small proportion. Kondylis and Manacorda (2012) go one step further, by arguing that increases in enrollment induced by improved school accessibility might, as an unwanted consequence, lead to a rise in child labor. Similarly de Hoop and Rosati (2012) investigate the impact of school subsidies and increased access to education on child work using data from ‘Burkinabé Response to Improve Girls’ Chances to Succeed’ (BRIGHT), an integrated program that aims to improve school participation in rural communities in Burkina Faso. They find that BRIGHT substantially improved school participation, yet it did not reduce – in fact may have increased – children’s participation in economic activities and household chores. They argue that if education programs are implemented to achieve a combination of increased school participation and a reduction in child work they may either have to be combined with different interventions that effectively reduce child work or they may have to be tuned more carefully to the incentives and constraints the child laborer faces.
A number of countries have adopted policies designed to discourage child labor and increase schooling through conditioning cash transfers to poor households on children attending school. The PROGRESA program is particularly important as one of the first conditional cash transfers that incentivized families to send their children to school. The cash transfer increases with the age of the child in order to compensate the household for the older child’s greater opportunity cost of schooling. In addition, at secondary school ages, girls receive larger cash payments for attending school than do boys. Several studies find the program to have had a significant reduction in child labor e.g., Schultz (2004) and Skoufias and Parker (2001).
A recent study by Edmonds and Schady (2012) considers how child time allocation in Ecuador responds to receipt of the Bono de Desarrollo Humano (BDH) cash transfer. The BDH cash transfer is randomly assigned to some eligible poor households and not to others. The BDH transfer is $15 per household per month, 7% of monthly expenditures for recipient households, and does not vary across eligible families. The transfer is paid to mothers, and does not have any conditions attached. They find that $15 a month given as the BDH reduces child labor. These results are consistent with a growing literature that documents that cash and in-kind transfers can reduce child work. Their findings highlight the central role that poverty plays in the child labor decision, and suggest the possibility of affecting large changes in child labor with relatively modest investments in poverty relief.
Parents do not send their children into paid employment out of a selfish preference. In the vast majority of cases, children are driven into work by poverty and the inability of poor households to manage external shocks. Households that are very poor are much more likely to send their children to work, resulting in the poverty of their children when they become adults. Hence child labor leads to a vicious cycle of poverty. Yet, any measures aiming to ban child labor might hurt poor children by reducing their welfare.
As a result addressing child labor needs to be mindful of its main driver and deal with the root of the problem: poverty. Cash Transfer programs have proved success in mitigating the poverty effects that drive children out of school and into labor markets. For example, in Brazil, the ‘Bolsa Familia programme,’ which provides cash transfers to some 820 000 children aged 7–14, is estimated to have increased school attendance by 4% nationally, but 9 and 12% respectively in rural regions and the north-east (the poorest part of the country). There is now a growing body of evidence that both conditional and unconditional cash transfers, in the range 0.5 to 2% of GDP, can play a role in increasing child schooling and reducing child labor.
Any intervention to control child labor should recognize the powerful market forces that give rise to child labor in the first place as there are many pitfalls and risks of backlash that occur in this area of complex interaction between household economics and market structures. As long as the main cause that pushes children to work, namely poverty, is not tackled, child labor will never be a phenomenon of the past. However, the recent evidence on the success of cash transfers in reducing child labor and poverty is promising.
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