The Economics of Child Labour in the Era of Globalization

Despite significant economic progress all over the world, a large number of children in developing countries still work instead of being in school where they rightfully belong. This has attracted the attention of researchers in various fields of social sciences, including economists who try to understand the factors responsible for the existence and persistence of child labour with the hope of coming up with effective policy recommendations to eliminate it. This book by Sarbajit Chaudhuri and Jayanta Dwibedi provides a policy-focused analysis of the economics of child labour. Through a series of theoretical models, the authors study the key drivers of child labour in developing countries and evaluate the effectiveness of various policy measures aimed at reducing its incidence.

The book constructs various small, open economy models having many sectors and many factors of production where child labour is one of the factors of production. The incidence of child labour in a country is determined by both demand and supply for it. The supply of child labour comes from poor households. In a static world, the households are simply trading off child leisure for child work; however, in a dynamic setting, child labour comes at the cost of child schooling and hence potentially higher earnings as a skilled worker in the future. The demand for child labour comes from the demand for goods and services which use child labour in production. Among some of the key policies analysed in the book are trade sanctions, foreign direct investment, subsidy to schooling, subsidy to agriculture, and direct cash transfers to poor households. In each case, the impact on child labour depends ultimately on how the policy affects child wage and the income of the poor households from non-child labour sources.

Chapter 3 of the book discusses the implications of trade sanctions for child labour in two alternative models. In both cases, trade sanctions are modelled as a decline in the price of the export good for the developing country in question. In the static model with full employment, the authors show that trade sanctions lead to an increase in child labour because the child wage goes up and the adult wage goes down. This happens because adult labour is used more intensively in the export sector, whereas child labour is used more intensively in the non-traded sector. What if child labour is used in the export sector as well? In the dynamic model with urban unemployment, the authors assume that child labour is used only in the export sector. Now a trade sanction, by making exporting more unprofitable, reduces demand for child labour. Therefore, the incidence of child labour goes down. However, trade sanctions also reduce adult-unskilled wages and possibly increase their unemployment rate. Therefore, while the incidence of child labour goes down, the welfare of the poor households decreases. This raises an important issue that should inform any policy debate on eliminating child labour. Do we want to use a policy that reduces the incidence of child labour but also lowers the welfare of the poor households supplying child labour? A simple legislative ban on child labour, even if perfectly enforced, is likely to create a similar trade-off.

While Chapter 3 studies the impact of trade sanctions in isolation, Chapter 4 shows how forces released by different policies can counteract each other. In particular, it shows that under some conditions (particular factor intensity ranking of sectors), foreign direct investment and education subsidies would reduce the incidence of child labour, but under those same conditions, trade liberalization and a subsidy to agriculture would increase the incidence of child labour. While it is interesting to identify how these policies may have opposing influences on child labour, it is worth pointing out that many of these policies are not attempting to address the issue of child labour and any impact on child labour may be an unintended consequence of these policies. For example, policy makers do not promote foreign direct investment to eliminate child labour but to serve other goals such as getting access to a superior technology to produce a good.

Unlike Chapter 4 which identifies the counteracting effects of various policies, Chapters 5 and 6 discuss the roles of foreign direct investment and agricultural subsidies, respectively, in isolation. An interesting result in Chapter 6 is that a subsidy to primitive agriculture which uses child labour can increase the incidence of child labour, but a subsidy to advanced agriculture which does not use child labour reduces the incidence of child labour. The welfare of poor households supplying child labour goes up in the former case, but goes down in the latter case. Therefore, agricultural subsidies again present a trade-off between the incidence of child labour and the welfare of the poor households mentioned earlier in the context of trade sanctions.

A somewhat paradoxical result is obtained in Chapter 7 regarding the impact of cash incentives for going to school or mid-day meal programs on the incidence of child labour. One would think that by incentivizing schooling, these policies would reduce the incidence of child labour. But the authors show that these policies could increase the incidence of child labour by reducing the return on education through a complicated general equilibrium effect. In a similar vein, the next chapter, Chapter 8, shows how growth can perversely affect child labour by increasing the demand for non-traded domestic services. With productivity growth, the usage of child labour in traditional agriculture is likely to decrease; however, there could be a new source of demand for child labour. Richer households increase their demand for domestic services as educated women join the work force. Because domestic services tend to be intensive in child labour, this new source of demand for child labour could offset the decline in the usage of child labour in traditional occupations. The last chapter talks about future direction for research.

The book covers a lot of ground on the determinants of child labour, but as the authors admit, some other important determinants of child labour such as missing credit markets are mentioned in the discussion but not discussed in detail in the theoretical models presented in the text. While returns to education is a key determinant of child labour in the dynamic models discussed in the book, the authors do not provide any discussion related to information about the returns to schooling. Even if returns to education are high, if parents are not aware of it, then the perceived returns may be lower than the actual returns, leading to a high incidence of child labour and lower schooling. In this case, the policy implication would be very different from the ones discussed in the book. Also, it would have been more satisfactory (possibly a difficult task) if the authors had provided a unified model and discussed various policies in the context of that model rather than providing models with different numbers of sectors, factors and different assumptions regarding factor intensities in various chapters.

Overall, this is a well-written book where policy implications are derived from well-specified economic models. The key equations and main intuitions are discussed in the main text in each chapter, while detailed algebra is relegated to the chapter-appendixes for the specialist reader. I think the book can be useful text for a graduate course in development of economics on the topic of child labour as well as for theoretical research on the economics of child labour.