Prashant Bharadwaj, Leah K Lakdawala, Nicholas Li, “Perverse Consequences of Well Intentioned Regulation: Evidence from India’s Child Labor Ban,” Journal of the European Economic Association , https://doi.org/10.1093/jeea/jvz059
The most common advice offered by many social activists to solve the problem of child labour is to ban the employment of children. The logic behind the advice is that when the law, through heavy fines and other penalties, makes it costly for employers to hire children for work, there would be a drop in the demand for child labour. India, for instance, enacted the Child Labour (Prohibition and Regulation) Act of 1986 banning the employment of children under the age of 14 hoping to put an end to the use of child labour.
Despite strict laws against it, however, child labour continues to be widely prevalent in the developing world. This suggests that there may be countervailing factors at play that negate the effectiveness of child labour bans which try to increase the cost of employing children. “Perverse Consequences of Well-Intentioned Regulation: Evidence from India’s Child Labor Ban” by economists Prashant Bharadwaj, Leah K. Lakdawala, and Nicholas Li looks into the multiple factors at play when it comes to laws against child labour and why these laws do not necessarily curb the practice.
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The researchers first note that legal bans against child labour are not properly enforced in developing countries because these countries usually have weak institutions. So, bans may not in fact sufficiently increase the cost of hiring children. If so, the researchers argue, a ban on child labour can actually work against the interests of children by causing the wages paid to them in the underground market to drop. This outcome is understandable because when it is illegal for employers to hire child labour, they may require higher returns in the way of profits to compensate for the increased risk they undertake to do business; they may thus be a lot less willing to pay well for the labour that they hire. Many employers would also choose to completely abstain from hiring children as workers, thus lowering the competition to hire child labour to a significant extent. The resultant drop in wages could actually push poor families living at low income levels to increase the supply of child labour in order to compensate for the drop in wages and maintain their income levels.
To prove their case, the researchers looked into employment data from the National Sample Surveys of 1983, 1987, and 1993. They compared employment trends among kids below 14 years old and those above 14 years old to gauge the effect of the 1986 law on employment among these age groups. They found that, after the enactment of the 1986 law banning child labour, there was a relative decline in the wages of kids under 14 years old when compared to those who were older than 14 years. One of the reasons for the fall in wages could also be the increase in the likelihood of children under 14 years old entering the labour market as poor families responded to lower wages by sending more kids to work to compensate for the income loss. In fact, a kid aged between 10 and 13 who had a sibling under 14 years old (and thus likely to be affected by lower wages due to the law against labour) was more likely to enter the labour market than one whose sibling was over 14 years old.
The researchers caution that legal bans can indeed be effective in curbing child labour if these bans are properly implemented by government authorities. But in developing countries in which institutions are weak, this may not always be possible. Even if such bans are effectively implemented, the researchers point out, their effect on the economic status of the children and their families may not be positive unless there are other forms of support offered to them. This is because families that send their kids to work are mostly the poorest of the poor and choose to send their kids to work primarily because they do not possess the means to support their kids.
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