The Economics of Child Labor

1. The Economics of Child Labor (Analysis based on a paper by Basu and Van, American Economic Review, June 1998) (http://ideas.repec.org/a/aea/aecrev/v88y1998i3p412-27.html) “Child labor:” Children, 14 or younger, working regular jobs in manufacturing, agriculture, mining, etc. Some facts from: “By the Sweat and Toil of Children - Efforts to Eliminate Child Labor” U.S. Department of Labor Bureau of International Labor Affairs, 1998. (http://www.dol.gov/ilab/media/reports/iclp/sweat5)

2. At least 250 million working children (between 5 and 14) in developing countries -- half work full time. Majority (61%) are in Asia. Africa has highest proportion of children working (41% of children between 5 and 14). Many work in hazardous conditions where they are . . . . . . exposed to harmful pesticides, toxic or carcinogenic substances; or . . . required to do things beyond their physical capabilities.

3. “On rice plantations in Kenya, children make up as much as 90% of the work force during periods of rice transplanting, an activity involving long hours of walking backward and bending to pick and replant rice. Working in rice fields, children are bitten by snakes and exposed to diseases such as malaria.” “In the production of firecrackers in Guatemala, children as young as 7 insert fuses into firecrackers. The work is highly dangerous. Children risk burns, amputations, and even death in accidental explosions. Exposure to gunpowder leads to respiratory illness and eye irritations.” Child labor perpetuates poverty. A working child often becomes an adult limited to unskilled, poorly paid jobs.

4. Some data from the “Sweat and Toil” report:

5. One of the leaders of the worldwide movement to end abusive child labor: Iowa’s Senator Tom Harkin From Harkin’s webpage: (http://harkin.senate.gov/) (Search on “Child labor”) “Tom Harkin is a leader in the growing movement to end abusive child labor around the globe . . . (He) has introduced several bills to combat the worst forms of child labor” . . . including the Child Labor Deterrence Act.

6. Child Labor Deterrence Act: (First introduced in 1992. Reintroduced a number of times since. Not yet passed.) (http://www.mirrorimage . . .) Would prohibit the importation of manufactured and mined goods into the U.S. that are produced by children under the age of 15. A good idea? . . . We’ll see.

7. Reasons for child labor: One popular “explanation”: Greedy, lazy, selfish parents who don’t care about children’s welfare force children to work so that the parents can enjoy leisure. (The “child labor = child abuse” explanation.) Evidence contradicts this view: Even in countries with a lot of child labor . . . . . . children of non-poor families rarely work, . . . and working children tend to blame poverty, not their parents.

8. More likely explanation: Parents of working children care about children’s welfare. They send children to work out of desperation, . . . . . . only when absolutely necessary to support family. A (very!) simple model of child labor: Assumptions: 1. Same productivity for adult and child worker. So adult wage = child wage.

9. 2. Parents care about children’s welfare. Will send them to work only if adults can’t earn enough to support family. In particular, assume there is some wage level, wmin, such that: If wage > wmin, only adults will work. If wage < wmin, adults and children will work. 3. Assume no other wage effects on labor supply.

10. wage ($/hr.) wmin L1 L2 workers Market supply of labor: At wages above wmin, only adults will work. (Let’s say there are L1 of them.) When the wage falls below wmin, children must enter labor force too. (Let’s say there are L2 adults and children combined.) When the wage is less than wmin, adult earnings are insufficient to support family -- children must work too.

11. wage ($/hr.) w* Demand wmin L1 L2 workers Labor market equilibrium . . . in a developed country. In a developed country, there’s lots of capital. So MPL is high . . . . . . so demand for labor is high. (Remember connection between MPL and labor demand.) L* = is above wmin. The equilibrium wage, w*, . . . Only adults have to work, so equilibrium employment, L*, . . . is L1.

12. wage ($/hr.) w1* wmin w2* Demand L1 L2 workers Labor market equilibrium . . . in a developing country. In a developing country, there’s very little capital. So MPL is low . . . . . . so demand for labor is low. Two possible equilibria: only adults work. “good” equilibrium: w1* and L* = L1 . . . “bad” equilibrium: w2* and L* = L2 . . . adults and children work.

13. wage ($/hr.) wmin L1 L2 workers Labor market equilibrium . . . in a developing country. Both equilibria are “stable.” (If there is a small movement away from equilibrium, . . . w1* . . . market forces will move wage back toward equilibrium.) w2* Demand Two possible equilibria: only adults work. “good” equilibrium: w1* and L* = L1 . . . “bad” equilibrium: w2* and L* = L2 . . . adults and children work.

14. . . . to a “good” equilibrium. Labor market equilibrium . . . in a developing country. wage ($/hr.) Many developing countries appear to be “stuck” in the “bad” labor market equilibrium. w1* A national ban on child labor could “bump” the market from a “bad” equilibrium . . . w2* Demand L1 L2 workers “Good” equilibrium would then be self-sustaining.

15. In many developing countries, the government has a hard time enacting and enforcing a ban on child labor because of political pressure. (The “bad” labor market equilibrium is “bad” for the workers, but “good” for business.) Is there anything that developed countries can do? Senator Harkin’s Child Labor Deterrence Act would ban imports (into the U.S.) of goods made (in developing countries) using child labor.

16. Child Labor Deterrence Act would result in a “partial ban” on child labor in developing countries: Firms in export sector (firms producing goods mainly for export) couldn’t afford to use child labor, . . . . . . firms in non-export sector (firms producing goods mainly for domestic consumption) could. Effects of a partial ban? Look at two cases: Export sector is “small” or . . . . . . export sector is “big” relative to non-export sector.

17. . . . non-export sector has enough adult workers to replace children previously working in export sector. Non-export sector Export sector If export sector is “small” . . .

18. Labor market stays in “bad” equilibrium – child workers just shift from one sector to the other. Child Labor Deterrence Act wouldn’t eliminate child labor. Non-export sector Export sector

19. . . . non-export sector doesn’t have enough adult workers to replace children previously working in export sector. Non-export sector Export sector If export sector is “big” . . .

20. Result: Excess demand for adult workers and excess supply of child workers. ? ? Non-export sector Export sector

21. Excess demand for adult workers means adult wage increases. Excess supply of child workers means child wage decreases. If adult wage < wmin, still have “bad” equilibrium. All children working but earning less. Families better off? If adult wage > wmin, get “good” equilibrium. In this case, CLDA would eliminate child labor. Is Child Labor Deterrence Act a good idea? . . . It depends.