Child Labor and Economic Development Part 2

2.2.2 Growth, Household Production, and Child Labor Most working children do so within the home. Hence, the economic organization of the home is tremendously important for how children spend their time. In this section, we argue that growth discourages child employment if production shifts out of the household but has the opposite effect if it brings productive assets inside households that previously lacked such assets. As such, children in extremely poor households may become more likely to work when incomes rise, but child employment appears to fall as subsistence concerns abate. Economic growth expands the extent of the market, creating opportunities for household specialization and demand for higher quality products than could be self-produced at home (Locay 1990; Goodfriend and McDermott 1995; Kelly 1997). Research on household specialization and child labor has largely focused on urbanization or trade. Fafchamps and Shilpi (2005) observe that in Nepali data, there appears to be greater household specialization as proximity to urban areas increases. Fafchamps and Wahba (2006) argue that children are more likely to attend school and not work as specialization increases with urban proximity. Interestingly, Fafchamps and Wahba note that while work in the household is reduced with urban proximity, child labor rises outside of the household. That is, the nature of child employment changes. Fafchamps and Wahba observe that this increase in hours worked outside the household is not enough to offset the total decline in hours worked. In the study of rice trade liberalization mentioned above, Edmonds and Pavcnik (2005) document that growth in the rice trade in Vietnam led to increasing incomes and a resulting decline in child labor. In a companion paper, Edmonds and Pavcnik 2006 argue that a rise in household specialization underlies much of this decline. Rising income leads to demand for better quality goods than can be produced within the household. The shift in demand for goods produced outside the household reduces the employment opportunities within the home. 18 While household specialization discourages child employment within the home, economic growth may also bring productive assets into the home. The availability of land, livestock, and other productive assets within the household can be an important influence on the child's potential net economic contribution. Children can only work in family businesses when there is one. Given that wage child labor is rare in most countries, studies frequently find that children are more likely to work if their household owns a business (e.g. Edmonds and Turk 2002). Hence, growth could increase child employment if it brings more productive assets into the household. Many poor households also lack available labor other than children. When the household needs additional labor in order to work new productive assets, the household turns to children. Edmonds and Theoharides (2020) examine a productive asset transfer in the Philippines for families of child laborers. Productive asset transfers are a common tool used by policy makers to try to reduce child labor by improving the household’s earning potential. While households experience improved food security and adolescents report increased life satisfaction in response to the productive asset transfer, children not engaged in child labor at baseline are more likely to be in child labor, including hazardous child labor. de Hoop et al. (2020) find a similar increase in child labor when production grows inside the home in Malawi and Zambia in response to an unconditional cash transfer. In Bangladesh, children spend more time working after asset distribution from an Ultrapoor Graduation Program (Sulaiman 2015, Hossain et al. 2017), including four years later in self-employment (Bandiera et al. 2017). The evidence is not uniform, however, and Emran et al. (2014) do not find an increase in child labor in response to Ultrapoor Graduation Program asset distribution in Bangladesh. Some types of businesses and productive household assets are more conducive to child involvement than others. Cockburn and Dostie (2007) observe that children in Ethiopian families are more likely to work on the farm when there is small livestock present than large livestock. Of course, families that own productive assets are often wealthier than families without productive assets. A recent study from North India by Basu et al. (2010) documents that the relationship between family landholdings and child labor follows an inverted U-shape. Poor children work more as their family adds productive assets, but at some point, child labor declines with the addition of productive assets as the family becomes sufficiently wealthy to avoid child labor. In fact, this story from Basu et al. is probably the most useful for understanding the complex interactions between growth, the economic organization of the household, and child employment. 19 At very low living standards, growth can bring in productive assets and employment opportunities for children that would not otherwise have been available. However, as living standards improve, the technology of production may shift away from children. Household’s demand for home produced goods declines in favor of higher quality goods available in the market. Combined with the family’s general desire to keep their children out of labor, discussed in the next section, child employment declines with increases in living standards. 2.2.3 Growth, the Demand for Education and Leisure, and Child Labor The canonical child labor model is Basu and Van’s (1998) “Economics of Child Labor.” In that model, they build from the assumption that the absence of child labor in a family is a luxury good for parents. In particular, they postulate that child labor occurs if and only if parents cannot provide the family with an above subsistence living standard absent child labor. This theory is called the “luxury axiom.” This view of preferences about child labor is extreme, but it appears consistent with the findings of several recent papers. In studying changes in child labor in Vietnam during its rapid growth of the 1990s, Edmonds (2005) uses data from the early 1990s to understand what families perceive as subsistence. He compares the changes in living standards observed in the 1990s to these subsistence perceptions. Child labor levels were cut in half in Vietnam during this time, and Edmonds finds that the progression of living standards from below to above subsistence levels in Vietnam can account for 80 percent of the decline in child labor. In a study in Ecuador, Edmonds and Schady (2012) examine the impact of a randomized unconditional cash transfer provided to families in the poorest 40 percent of the population. The lottery led to a transfer that was equivalent to 7 percent of monthly expenditures, and it was associated with a 78 percent reduction in paid employment of children. The transfer is less than foregone earnings from child labor. Because families use the cash transfer to keep children in school and out of the labor market, the cash transfer leads to a reduction in household income. This is consistent with the luxury axiom. The transfer is enough that, between the transfer and adult income, families can meet their subsistence needs without child labor. Hence, families forego child labor even though that leads to a reduction in total household income. Additional income might also solve other household problems, like an inability to transfer resources over time, that contribute to child labor. In a paper in South Africa, Edmonds (2006) 20 documents that illiquidity has an important influence on child labor decisions. This is consistent with the observation that income growth reduces child labor, as households are better able to afford things like school fees where liquidity is important. Along with Pavcnik and Topalova (2010), Edmonds argues that both illiquidity and school fees cause poor families to experience a relative increase in child labor and decline in schooling when family incomes fall. Illiquidity can also explain why child labor rises in temporary economic downturns as discussed above. Families resort to child labor to cope with transitory events, if they cannot easily borrow against future earnings. Of course, the decision to work does not depend on the potential economic contribution of the child alone. It also depends on the perceived returns to other available activities. Schooling is important, and economic growth may change the returns to schooling (either in the future or through improving current school quality). It may also change how the family values schooling. Schooling is not the only alternative use of a child’s time outside of work. Leisure and play are important components of how children spend their time and may be critically important for child development. The family’s value of play and leisure may also change with growth. Hence, many forces may be working against child employment in the course of economic development. 3. The Role of Governments A review of how governments can foster growth- or how growth impacts the functioning and activities of governments- is beyond the scope of this essay. This section presents a brief overview of the types of actions that governments take in the process of economic development that will directly impact child labor. Specifically, how does child labor related policy change with growth? Each topic could be worthy of its own separate review, and this is not intended to be a complete review of policy responses to child labor. 3.1 Regulation Encouraging the adoption of anti-child labor regulations and minimum age of employment laws was the center of 1990s global child labor policy. As such, now nearly every country in the world has a minimum age law. This process of regulation differs from the historical process of the regulation of child employment that took place in many of today’s high-income countries where regulation followed large societal declines in child employment (Moehling 1999). 21 Edmonds (2014) has argued that contemporary minimum age of employment laws in low and middle income countries appear to largely be unenforced. Doepke and Zilibotti (2009) argue that unenforced laws run the risk of undermining demand for real, meaningful regulation. Partially enforced laws may even have negative effects. Manacorda (2006) documents that enforced child labor laws in the US in 1920 may have decreased schooling of the siblings of child laborers. Bharadwaj et al. (2020) document that the data are consistent with declines in child wages after India banned child labor. They argue that imperfectly enforced laws decrease child wages because of the risk of a fine and that lower wages for children lead to more child labor. There are no encouraging signs in the literature that economic growth will lead to either improvements in this current regulatory environment or in the enforcement of regulation and thereby a reduction in child labor. Further, the focus of regulation is typically based on a child rights framework rather than an economic framework. As such, the focus of regulation is usually too limited to prevent the negative consequence child employment has on economic development. For example, the United Nations Convention on the Rights of the Child (UN-CRC) emphasizes the importance of protecting children from "work that is likely to be hazardous or to interfere with the child's education, or to be harmful to the child's health or physical, mental, spiritual, moral or social development" (1989, Article 32). The public's general understanding of the concept of child labor applies to activities that violate this standard, and this general idea of child labor as work that is undesirable for the child is also in ILO Convention 182 on the Worst Forms of Child Labor (C182) that followed the CRC. Child labor regulations attempt to reflect CRC and C182. The most common forms of work that interfere with economic development may not fall within this limited definition of harmful work. Moreover, this rights-based definition of child labor is built on a lot of ambiguity. Whether work is hazardous depends on the tasks performed in the work and working conditions, and one can debate what hazardous means. When does work interfere with education? When is it harmful to the child? The ambiguity inherent in this approach to regulation may in part contribute to its lack of enforcement. The economics literature, the focus of this study, uses a broader definition of child labor. Economics is the study of decision-making under constraints, and the definition of child labor in the academic literature takes into account that there is a constraint on child time. Hence, child participation in any activity has a cost to the child in terms of foregone opportunities. In the same 22 way, child participation in any activity also has a return or benefit to the child. Researchers cannot distinguish between child employment and child employment that is net harmful (which would seem more consistent with the rights definition of child labor). As a result, the economics literature often uses child employment and child labor interchangeably much as adult employment and adult labor are used. The implications of this for child labor policy are important. If labor regulation is focused on a child rights definition of child labor, even effective labor regulation will ignore the types of child employment that may be most important for the impact on child development discussed in section 1. The idea of promoting positive child activities discussed in the next section then seems like a more practical approach for avoiding the negative effects of child labor on growth. 3.2 Promoting Positives As countries develop, they develop social assistance infrastructures, and many countries have begun doing so with conditional transfers that incentivize families to invest in human capital. Some of the strongest evidence of an impact of policy on child time allocation comes through studies of conditional transfers. Given the close connection of poverty and child employment, taking punitive action against those engaged in child employment runs the risk of punishing the poor for being poor. This, coupled with the fact that political will for the regulation of child employment appears directed against a subset of activities, suggests that anti-child labor efforts stand the best chance of improving welfare if they focus on encouraging positive actions by parents and children rather than discouraging negative. What types of policies, programs, and projects raise the value of child time outside of child labor? The options are vast. Conditional transfer programs give poor families additional resources for sending their children to school. Programs like Mexico’s Progresa, which provides cash transfers, have been shown to substantively alter child time allocation, increasing schooling and sometimes decreasing child labor at the same time. Fiszbein et al. (2009) have assembled an exceptional review of conditional cash transfer programs and their effect on the welfare of the world’s poor. de Hoop and Rosati (2014) review this literature as it relates directly to child labor. By increasing returns to education and reducing poverty, conditional cash transfers appear to both reduce the net economic gain from having the child work and diminish the family’s need for that economic contribution. 23 Children in hazardous forms of child labor are often both negatively selected in that they come from the most disadvantaged families (Edmonds 2010; DeGraff et al. 2016) and tend to receive greater compensation for their work, perhaps as a compensating differential for the hazards of the work. Hence, it is reasonable to be skeptical about the scope for conditional transfers to be effective against hazardous forms of child labor. The evidence seems to suggest otherwise. Discouraging child labor does not require full earnings replacement with the transfer (de Hoop and Rosati 2014). In Nepal, Edmonds and Shrestha (2014) evaluated a conditional transfer to children associated with carpet factories in Kathmandu. The value of the transfer was 20 percent of the income children could earn as weavers, and they found that it nearly eliminated child participation in weaving during the period of the incentive. Conditional transfers are expensive and may not be affordable in low-income economies. Short-term projects providing conditional transfers may not provide lasting impacts. In Edmonds and Shrestha’s Kathmandu study, for example, they revisited subjects after a year and a half and found no lasting evidence of an impact of the program on schooling or child labor. Thus, using conditional transfers may require enduring support that is unaffordable in many settings. Smaller scale versions of the same idea (raise the net return to alternatives to child labor) may be more sustainable and still impactful. This might include the reduction in school fees, investments in school quality, or improvements in school access (Guarcello et al. 2006). All three of these seem to generally accompany the process of economic development, so there is scope for them to directly influence child employment and child labor beyond the general changes we expect to see as a result of rising living standards. That said, Jafarey and Lahir (2005) point out that when households face liquidity constraints, resource transfers to the household might reduce child labor more than equivalent resources transferred to the schools for quality improvement. The direct promotion of vocational skills and job training is another avenue through which positive alternatives to child labor could decrease the prevalence of child employment. It seems that historically, economic development is associated with a rise in availability and interest in vocational education (which may then fall as development continues, Benavot 1983). There seems to be a lot of optimism about this in the child labor policy world at the moment, and Attanasio et al. (2017) find long-term benefits to vocational education, at least in Colombia, while other studies find little to no benefit from these programs (McKenzie 2017). Direct 24 evidence of an impact of vocational skills or job training on child labor is not available at the time of writing. 3.3 Social Safety Nets, Credit and Insurance As countries grow wealthier, it is not unusual to see the emergence of social safety nets beyond just conditional transfers, and these safety nets protect the most vulnerable from the circumstances that lead to child labor. To the extent that child labor is motivated by subsistence concerns as in the canonical model of child labor, social safety nets that ameliorate poverty can eliminate motives for child labor. Some social safety nets include conditional cash transfers as discussed in the previous subsection. The impact of positive incentives such as conditional cash transfers alone might not be enough to protect children from working when the family faces an economic crisis. de Janvry et al. (2006) study the impact of the conditional cash transfer in Mexico on child employment when families face idiosyncratic shocks. They find that, while families protect child school attendance during a crisis (the transfer is conditioned on schooling), they also turn to the children for assistance through child labor. Interestingly, Fitzsimons and Mesnard (2014) study the impact of a father’s permanent departure in Colombia. There, they find that conditional transfers can compensate for the loss of the father, without causing the family to turn to child labor. The contrast between their study in Colombia and the Mexico study highlights that the extent to which social assistance can mediate an event may depend on how permanent the shock is and the context for the transfer. Many social safety nets rely on unconditional cash transfers (UCT) rather than conditional transfers. When the policy goal is protecting household well-being, the flexibility of the unconditional cash transfer allows households to select what is best for them. As discussed above, at very low levels of development, households may invest in bringing in productive assets as in the evaluation of UCTs in Zambia and Malawi (de Hoop et al. 2020), resulting in a growth in child labor. A very different result is in Edmonds and Schady’s (2012) study from Ecuador where households seem to spend the entire UCT to keep children in school, effectively eliminating children from entering paid employment at the end of primary school. Social assistance programs are more than CCTs and UCTs. De Silva and Sumarto (2015) review the wide range of social 25 assistance programs in place in Indonesia and argue that these programs play an important role in discouraging child involvement in paid work. Of course, with development comes improvements in credit markets that may help families transfer resources across time without relying on child labor. Both Baland and Robinson (2000) and Ranjan (2001) present theoretical models showing that market imperfections can lead to child labor. In the study in South Africa discussed above, Edmonds (2006) finds that families are unable to smooth consumption against anticipated changes in income and that this leads to more child employment. Hence, functioning credit markets can prevent some instances of child labor. Bandara et al. (2015) document that families with bank accounts in Tanzania seem to be able to avoid relying on child labor when farming families face a negative crop shock. In Guatemala, Guarcello et al. (2009) find that exposure to negative shocks induces children to start working, but when coping mechanisms like insurance are available, child labor is reduced and education increases. Alvi and Dendir (1998) document a similar phenomenon in Bangladesh, where child labor only increased after the 1998 floods if households did not receive credit. Across countries it appears to be the case that those with more developed credit markets experience less child labor (Dehejia and Gatti 2005). This positive link between credit and the absence of child labor does not imply that microfinance projects can be presumed to decrease child labor. If successful, they change the economic structure of the household. Depending on the impact of microfinance on the availability of employment opportunities, the location of employment opportunities, the types of work available, and the living standard of the household, microfinance projects can increase or decrease child employment and child labor. This is particularly true when labor markets are not functioning efficiently (Dumas 2013), and it is thus difficult to hire labor from outside the household. Islam and Choe (2013) document decreases in schooling and increased child labor in Bangladeshi households involved in a microcredit program. Wyndick (1999) points out that in the Guatemalan context, the response to microcredit depends on the substitutability of hired labor and child labor. When hired labor is not easily substitutable, child labor rises in response to microcredit. In Bosnia and Herzegovina, access to microcredit increases the labor supply of adolescents (16-19 year olds) in the household’s business (Augsburg et al. 2015). The earlier discussion about the mixed relationship between the technology of production and child employment is relevant here as well, and just as ambiguous, in the context of microfinance. 26 Much like credit, formal insurance contracts tend to emerge with development (perhaps as an artifact of the ability to enforce contracts that evolves with development). As discussed above, there is a bounty of evidence that both economic and health shocks lead children to work. Recent causal evidence from Landmann and Frolich (2015) shows the provision of health and accident insurance to participants in a microfinance project in Pakistan helped reduce child labor and participation in hazardous activities. Interestingly from this Pakistani example, the impact of health and accident insurance on child labor occurred in both households experiencing a health shock as well as those that did not during the study period. One likely explanation for this is that when households know that future shocks are likely and will induce child labor, they may choose to have children work in the present. That seems especially relevant in the realm of health where some sort of negative health shock is inevitable in life. Summary Child labor is a human rights issue. This essay is motivated by the question of whether child labor is also a sustainable development issue. This review of the literature, suggests it is. The world’s 218 million working children depress economic growth in the short run by depressing the wages of unskilled labor, worsening poverty, and discouraging the adoption of skill intensive technologies. In the long run, work today depresses child development and leaves a country with a substantive share of the future adult labor force poorly positioned to take advantage of new opportunities for growth. Of course, not all child employment is on balance bad for the country, but the developmental impact of both common forms of work and hazardous forms of child labor merits attention in the process of sustainable development. Because of this impact of child labor on economic growth, there is a strong case that child labor policy should be part of policy efforts to promote sustainable development, without appealing to human rights issues, even though those issues can be important. This essay has reviewed child labor policy that is likely to evolve with economic growth. It is not a thorough review of policy tools available to combat child labor. Nonetheless, the main lesson from the policy discussion herein seems broadly relevant: promote positives and social safety nets. Promoting alternatives to child labor leads families to choose those alternatives, and social safety nets can eliminate motives for child labor. An important lesson from all the literature reviewed herein is 27 that child labor can change dramatically and quickly in countries as a result of changes in the economic and policy environment. While sustainable development projects and programs can focus on child labor and child labor policy may hasten its decline, this study has also documented how central poverty appears to be in explaining the existence of child labor. 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