Notes on Child Labor
Kala Krishna
March, 2003
Abstract
These are notes for Econ 433.
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Introduction
In early stages of development there is a tendency to see child labor as well
as adult labor in the labor market. As a country develops, laws tend to be
enacted to prohibit child labor and to make schooling compulsory. Child
labor vanishes. There is a presumption that child labor is bad. However,
evidence suggests that children are often sent to work out of need, not in an
attempt at exploitation. Thus, the questions to ask are the following:
1. What is child labor? Is doing chores child labor? If you work at Giant
to make some pocket money over the summer, is that child labor? What if
you work a full day in the school year and as a result your grades suffer?
What if you leave school to work to feed your family? Does your answer
depend on whether you are 5, 10, 14, 17 at the time? What if you learn a
trade as a child?
2. Why is it bad? Equal opportunity is less likely? It is evil to make a
child work?
3. What do we want policy to accomplish? Education, opportunity, in
long run higher and more equitable real incomes, lower population growth.
4. What would are the effects of various policies? Banning it. Banning
imports of products made using child labor as in Harkin’s Bill. Can this even
be implemented? Also, not consistent with WTO. Providing free textbooks
and lunch at school.
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5. Assuming that you want equal opportunity. One might ask what the
effect of child schooling laws and the prohibition of child labor might be.
6. Does greater integration in the world result in a race to the bottom in
labor standards?
Here we develop some simple ideas and models that help understand the
economics behind child labor. (See Basu and Van paper on reading list)They
suggest many things. First, that raising wages would raise income and hence
increase child leisure, reducing child labor. However, the substitution effect
would work the other way. If there is a lot of substitution in leisure and goods
then raising wages may reduce leisure and raise child labor. Empirically in
developing countries this is unlikely: the income effect seems to dominate at
these wage levels. Of course, at other income levels, this need not be the case
and an increase in the wage may raise labor supply. At very low wages, for
example, this may be the case. Labor supply is zero at a zero wage and a low
wage results in a large substitution out of leisure overwhelming any income
effects. Second, that there may be two equilibria: high and low wage and
banning child labor may move the economy to the high wage equilibrium.
Third, it suggests that such policies may also switch an economy from a low
wage, high fertility equilibrium to a high wage low fertility equilibrium.
There are also a number of things we can say about child labor using the
standard models we have developed so far. Tariffs and protection against such
goods which are tend to be labor intensive, would tend to reduce wages in
developing countries via the Stolper Samuelson theorem and so work against
reducing child labor. In a specific factor model as well, a tariff would reduce
the price received by the exporting country and hence shift the marginal
value product of labor back, reducing the wage. A wage reduction would
makes such families worse off, not better off.
Banning child labor would act to reduce the labor available and at given
product prices, raise wages. The reduction in the labor force would also shift
the relative supply of the developing counties and hence of the world, of labor
intensive goods, raising their price and through this the wage. Thus, tariffs
seem more harmful than child labor bans.
We could also note that labelling might internalize the desire for products
without child labor. However, to the extent that there are common property
aspects to this, i.e., I care about there being less child labor and not necessarily about the fact that I did something to stop it, this has the usual common
property problems associated with it. Finally, that greater integration tends
to make labor standards more costly as it makes world supply more elastic
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Figure 1: The Budget Set and Choice of Child Labor
Leisure
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2
1
0
@
@
@
@
@
@
@
-
w
Consumption
2w
so an increase in your cost results in a large loss of market share.
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A Model
Consider a family with n = 1 children and a working adult. Each adult
works 1 unit, i.e., full time for simplicity and their labor is normalized at
unity. Suppose that there are two goods: child leisure, l, and a consumption
good, c. The family maximizes the utility function:
U (l, x) s.t. wl + px = 2w
or expenditure on child leisure and the consumption good equals full income.
This gives choices to be l∗ (.), x∗ (.). What does the budget set look like?
Note that as w rises, the budget set swings out from the point (0, 2)
becoming flatter. As we assume that adults work a full day always, leisure
cannot exceed unity and this gives the kink in the budget set. As the family
is a net seller of labor it must be made better off by an increase in wage. As
the wage rises there are two effects. On the one hand due to a higher price of
leisure, less leisure is demanded via the substitution effect and so more labor
is supplied. If there is little substitutability in leisure and consumption, then
this effect is small. On the other, the increase in wage raises real income as
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Figure 2: Labor Market Equilibrium
wage
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Labor
0
the family is a net seller of labor. If leisure is a normal good, then the income
effect makes the demand for leisure higher and supply of labor lower. If the
income effect dominates, then as wage rises leisure rises and labor supply
falls. This seems to be the case empirically. Work on the effect of rice price
increases in Vietnam (see Edmonds and Pavnik paper in reading list) shows
that rural household reduce child labor while urban ones increase child labor
as we would expect given the former are net sellers of rice and the latter net
buyers. .
Let us assume that labor supply has a backward bending component. At
very low wages labor supply is increasing in wage but there is a region where
it bends backward. At a high enough wage, the choice is at the kink and for
further wage increases labor supply is fixed at unity. This labor supply is
depicted in Figure 2. Note that the supply of labor is backward bending and
then inelastic. There are two stable intersections of supply and demand, at a
low wage and at a high wage. The middle one is unstable. At the high wage
all labor is supplied by adults. At the low wage both work. Hence there can
be two equilibria. A high wage one and a low wage one. If we ban child
labor, then labor supply remains fixed at all wages so the only equilibrium is
the high wage one. Moreover, children will be willing to work so we will not
even have to enforce the ban!
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Figure 3: Labor Market Equilibrium with Endogenous Fertility
wage
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Labor
0
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Fertility Choices
Now consider the issue of fertility. Assume that a family can choose the
number of children it has. In a nutshell, if wages are low, then children work
and as a result it is worth having more children so fertility, population size
and labor force size are large. On the other hand, if wages are high, labor
force is low and the supply of labor shifts in as depicted in Figure 3.However,
note that there is only a high wage equilibrium with a low labor force! Thus,
child labor laws can pack a double whammy, eliminate the bad equilibrium
and raise wages further by reducing labor supply.
In other words, if the wage is high, then children don’t work. The benefit
of additional children is low while the cost in terms of forgone earnings is
high. Thus, chosen fertility is low. However, if chosen fertility is low, the
labor supply is low so that the only equilibrium in the labor market could
be the high wage one. Similarly, if the wage is low, then chosen fertility is
high so that there is a lot of labor supply in the labor market so that the
only equilibrium could be the low wage one!
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Policy Implications
First, legislating child labor laws can move the equilibrium from the low wage
to the high wage one by reducing supply in the labor market. In this way it
can affect fertility decisions. It also affects fertility by reducing the benefit
of having children and make the high wage equilibrium the only one. This is
a real case for such laws.
Second, compulsory schooling can acting like a ban on child labor. This
tends to move the equilibrium to the high wage one. Of course, the two in
conjunction will be more effective.
Third, making school less costly, free uniforms and books, can also reduce
child labor and act in the same way.
Fourth, effective family planning may result in a double whammy. Wages
rise so endogenous family choice is affected as well.
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