Wednesday, August 18, 2010

Should we boycott child labor in other countries?

I came across an article that inspired a lot of my research Kaushik Basu and Pham Hoang Van's (1998) American Economic Review article on "The Economics of Child Labor" (or a short summary here)

The article provides a model of what would happen if child labor is banned in a developing country.

A ban could be good if children stop working, then wages rise for adults and now the developing country has richer parents and children who are not working and maybe going to school.

A ban could be bad if children stop working in factories and there is not enough money to feed the family or keep non-working children in school. Children without factory jobs may turn to dangerous unregulated jobs or prostitution.

The article shows that although many countries have anti-child labor laws, it really isn't until a country develops that children stop working.
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1 comment:

Dan R. said...

Seth, I'm not sure if I understand the first equilibrium. In what way does restricting the available pool of labor create wealth? Certainly it could transfer wealth or rents from one group to another, but I don't see how restricting access to labor is ever wealth-creating. As a thought experiment, replace "child" with "female" and see if you get the same result.

Further, assuming that workers are paid approximately their marginal productivity (and no more, the model assumes that profits are completely retained by entrepreneurs), and children are paid less than adults, why would real adult wages rise if low-productivity workers are removed from the market? (This is stated in the authors' model, with gamma<1.) They're assuming a rise in productivity because some of the child labor will be substituted at the margin with either capital or currently idle adult labor. But wouldn't prices rise across the economy, thus offsetting real wage gains? And if there were real productivity gains to be had by substituting capital or idle adult labor for child labor, why wouldn't this have already been identified by the firm owners?

I'd be interested to hear your thoughts on this. I'm stuck on the fundamental question of whether/how restricting labor market participation can be wealth-creating (I'm not arguing welfare-enhancing), so if you'd like to comment on that, I'd like to hear your thoughts!