Development Economics

1. Development Economics Child labour.

2. Outline • Introduction • What is child labour? • What drives child labour ? • Fighting child labour: policies.

3. 1. What is child labour?

4. Basics: • child • under age 15 (ILO convention 138) • Often statistics include children aged 15 to17 • labour • “the person does work on a regular basis for which he or she is remunerated or that results in output destined for the market.” (Indian census)

5. Definitions • Economic activity: encompasses most productive activities, including unpaid, illegal work or in informal sector • Child labour: covers economic activities for children who either: • Are below age 12 • Are between 12 and 14 years old and do more than “light work” • Are between 15 and 17 and undertake hazardous work. (ILO conventions) • Hazardous work: has adverse effect on child development (health, safety...); by the activity (conditions) or the number of hours • Unconditional worst forms of child labour: traffic, prostitution, armed conflicts...

7. In 2000:

8. By region

9. Asia has the highest number of working children • But: • African children have a higher risk of being at work. • Children are engaged in economic activities much younger in Africa than in Asia • Child labour declines much faster in Asia than in Africa.

10. What are the trends?

11. By gender:

12. but • The above table doesn’t include domestic chores (done by children in their own household): • Cleaning, cooking, laundry... • Fetch water, wood... • Taking care of the elderly, babies, sick people. • Taking it into account reverse the above result: girls are in fact more likely to work • Higher participation & longer hours.

14. Age profile:

15. Other important features • Overwhelmingly rural • 70% of working children are doing agricultural tasks. • Most of them work with their parents (ex: CI: 35.3% inside hh, 6.2% outside; Laos: 29.3 and 3.9%) • Rural bias stronger in Africa. • Most often, unpaid work • In Senegal, 71% of working children aged 11 to 17 are unpaid (14.5% in apprenticeship, 7.5% working for a wage and 5% self-employed).

16. Hours

17. Data issues • Difficult to measure labour hours • Specially for children (no contracts...) • No (low) occurrences of worst (hazardous) forms of child labour in household surveys • Specialized survey • In hh survey: exposure to chemicals, heat, work injuries, long hours in agriculture

18. Is child labour a problem? • It may prevent children to go to school • Through : • Concurrence between activities • Tiredness, less time spent on homework • Lower human capital accumulation (drop-outs, repetition...) • But • Causality difficult to identify: are children at work because they left school or the reverse? • Unobservable (abilities, preferences...) affect both education & labour choices. • Low performance students are more likely to engage in work activities • A lot of children do both • Work on hh farm (during holidays) • School only half of the day • 1h of work does not necessarily imply 1h less of education • 2 questions: • Trade-off – time allocation between school & work • Implications of work on schooling

19. Few contributions • Bangladesh FFE (Wodon & Ravallion) • child labor falls – 30% for boys, 16% for girls • But only 25% (12%) of the increase in education attendance for boys (girls) • Progresa • Schultz : Child labour falls by around 14% (sign for girls) at 2ndary level • Parker & Skoufias: increase in education associated to the same reduction in participation to economic activities for boys (less for girls) • Boozer & Suri, Ghana: • Rain affect child labour demand but uncorrelated with long-term returns to education • 1 more hour of labour decreases attendance by 0.38h.

20. Work could slow academic progress, but it is the case mainly for long hours: • Dumas, Senegal:Child labour (participation) doesn’t decrease test scores, for a given number of years of schooling • Bangladesh (Canals-Cerdo & Ridao-Cano): early work participation slows progress and decreases the probability to enter secondary school. • Returns to experience: • Experience gained by working also has positive returns: in Vietnam, for a child working 7 hours a week during childhood, the loss in education is greater than the return to additionnal experience only from age 30 onwards.(Beegle et alii, 2006)

21. Impact on health • Intergenerational poverty trap: • vicious (poverty trap) • poor hhs  need to make their children work  kids earn less when grown-up  poor hhs • virtuous – some jump occurs • poor hhs  get educated  kids earn more  better off hhs  kids educated  earn more

22. 2. What drives child labour? • Poverty? • Low returns to education? • Few alternative time uses • Credit constraints? • Labour markets imperfections? • Child opportunity cost is high if you don’t have access to other workforce

23. Framing the decisionlabour vs education • 3 sources of benefits • earnings from the child • savings from reduced education spending • specific human capital returns = experience • Costs • lower earnings when child enters labour market with lower schooling • foregone non-market benefits from schooling (education good for home production, child rearing) • well educated workers may increase productivity of the group • well educated participate more in society • What is the trade-off between education and labour?

24. Child labour and income • Why living standards improvement should lead to lower work participation of children: • Child labour viewed as a bad in hh’s welfare function • With diminishing marginal utility of income, the value of child’s contribution decreases with income • Higher income facilitates purchase of substitutes for child labour (fertilizer...) • Child’s productivity at school may increase when buying other schooling inputs (textbooks)

25. Cross-country evidence

26. Poverty impact – Theoretical framework. • Basu & Van 1998: • Hyp: Parents dislike child labour and use it only to reach subsistence level (luxury axiom) • Possible substitution between adult and child labour (substitution axiom) • “Nimble fingers”? Not supported • Hence, child labour depresses adult wages • 2 equilibriums: • 1 with low adult wages → poverty → child labour → low wages • 1 with high adult wages → no poverty → no child labour → high wages

28. Poverty – policy implications • Ban could permit to switch from the low equilibrium to the high one • If assumptions are wrong or if partial ban (equilibrium does not switch) • People are worse-off after the ban because they can’t survive • Difficulties: • Enforcing a ban (notably) for work within the household • Historical experience doesn’t find strong evidence on the role of the child labour legislation on the decrease of CL;

29. Poverty impact? - empirics • Estimation of the relationship: Work = αPoverty + u • Issues: • How to choose the relevant poverty line? • Endogeneity • If child works for escaping poverty then reverse causality • Poverty without counting child income? • But all household members labour supplies are chosen simultaneously • No good study specified like that – need an exogenous transfer to instrument poverty

30. Empirics (2) • Exogenous changes in income transfers (pension reform, see education lecture) • Edmonds, south Africa: decrease in labour time of adolescent children (-1 hour per day, starting from 3); no change in participation. • Carvalho, Brazil: same kind of effects, weaker.

31. Empirics (3) • Impact of change in wage: Bhalotra • Estimation of the own wage elasticity of child labour • Work (in hours) = β Child wage + v • If people need to meet a given threshold, then β<0: need to spend less time working in order to meet the subsistence level • If children are working for another reason (insufficient returns to education) then increases opportunity cost and β>0

32. Results : • Rural Pakistan • Accepts (weak) poverty hypothesis for boys, not for girls • Issues: • Very limited number of observations (50), since need a wage.

33. Dumas • Economic model of the same spirit with rural households • Relationship with land area: • Income effect: reduce child labour • Substitution effect: raises opportunity cost if not perfect labour markets and thus increases child labour

34. Results on rural Burkina Faso (80’s): • Child labour increases with land area • Rejection of subsistence hypothesis • Same results based on • Mueller, Botswana • Bhalotra & Heady, Pakistan & Ghana • Means that • In these cases, child labour is driven by imperfection of labour markets rather than poverty • No strong aversion against child labour • especially when there is no alternative use of child’s time • specific human capital

35. Why are labour markets imperfect? • Information asymmetries • Family labour is more efficient • Seasonality • If everybody has a plot to crop then almost impossible to find a worker for the harvest • Efficiency wage • If employers decide to provide higher wage than the equilibrium wage (clears the market) then unemployment

36. Impact of changes in output prices: • If output prices increases: • Income effect: household “buys” more child leisure • Substitution effect: opportunity cost increases which lead to a higher use of child labour

37. Evidence • Kruger (Brazil) coffee prices rise  school attendance decreases, child labor increases • Cogneau and Jedwab (Côte d’Ivoire), cocoa prices cut by half  child labor increases, enrolment decreases, health deteriorates. • Edmonds and Pavcnik (Vietnam) as rice prices rise  child labor declines. Difference between net producers and net consumers of rice. • No easy conclusion

38. Transitory poverty - shocks • short term income fluctuations, credit should be able to smooth • Jacoby & Skoufias (India)– transitory shocks  lower school attendance • But full insurance would lead to increase human capital only by 2% over 3 years. • Beegle, et. al. (Tanzania) transitory shock  increase in child labor, esp. for poorer households • Durya et al (Brazil) children work more when adult unemployed • Edmonds (S. Africa) households can’t even borrow against sure income – current pension recipients kids go to school, work less

39. Hence, improving insurance or credit market might help. • DeJanvry & alii (Mexico): the role of safety net played by Progresa transfers indeed prevent some children to drop out of school, even if they start working following an income shock.

40. Other problem with credit market imperfections • Children in bondage • Collateral • Child enters bondage when his parents take out a debt from an employer against future earnings • Very difficult to repay debt and exit bondage • Often inheritable

41. 4. Policy options • Several levels of intervention: supra-national, extra-national, national • Various approaches: coercive, incentive • Various targets: child labour, education.

42. Supranational • ILO, WTO, UNICEF • Ban child labour • Enforcement difficult • Consequences in terms of welfare difficult to assess, but bad if due to poverty • No evidence of any impact of ILO convention ratification

43. Extra-national • Sanctions on countries using child labour • e.g. US/Harkin Bill • hijacked by protectionists • Boycott or labeling • Welfare impact : depend on what children who are removed from the traded sector are they doing instead : • Children might just be moved to sectors that trade only domestically.→ their working conditions might not be improved? • Might carry on working for lower child wages • demand for output from child labour falls • Fining firms using child labour depresses child wages • lower child labour (wages)  lower hh incomes  worse poverty? • Impact on adult labour probably nil because it concerns only very few children, relative to the size of the adult workforce (10000 children in Bangladesh garment industry = 0,1% of working children in the country)

44. National • Ban: Moehling (US): • little evidence that minimum age laws for manufacturing employment (1880-1910) contributed to the decline in child labour • Incentive policies: • Supply side: Increase school supply, quality • payoff is still way off • Demand side: Pay parents to send kids to school • grant, slightly less than earnings • conditional on low income, and kid’s enrollment in school • Seems to work best!