The political economy of child labor

Dissertation

zur Erlangung des akademischen Grades des Doktors der Wirtschaftswissenschaften (Dr. rer. pol) an der UniversitÄt Konstanz, Fachbereich Wirtschaftswissenschaften

vorgelegt von Alessandro Maffei

Tag der mÜndlichen PrÜfung: 12.07.05

1. Referent: Prof. Dr. Heinrich W. Ursprung 2. Referent: Prof. Dr. Arye Hillman

Juli 2005

Contents

Zusammenfassung in deutscher Sprache...…...IV

1. Introduction ...1

Part I 2. Definition of Child Labor ...3

2.1. Definition of the Term “Child” ...3

2.2. Definition of Working Activities by Children ...4

2.3. Classification of Child Labor and Child Work ...6

3. Some Facts about Child Labor...7

3.1. Figures about the Extent of Child Labor...7

3.2. Sectors in which Children are Employed...9

4. Institutions Concerned with Child Labor...11

4.1. Intra-National Institutions ...11

4.2. Extra-National Institutions ...12

4.3. Supra-National Institutions ...13

5. The Positive Theory of Child Labor ...18

5.1. Culture versus Poverty ...18

5.2. Neo-Classical Child Labor Supply Models ...19

5.3. Game-Theoretic Approaches ...22

5.4. Empirical Studies ...24

6. Normative Theory in a Closed Economy...26

6.1. Child Labor and Multiple Equilibria...27

6.2. Child Labor and Inefficiency ...32

6.3. Empirical Studies ...40

7. Normative Theory in Open Economies...41

7.1. Child Labor Standards and Harmonization...43

7.2. Child Labor Standards and Trade Policy ...46

8. Policy Issues...50

Part II

9. The Political Economy of Domestic Child Labor Policies ...52

9.1. Introduction ...52

9.2. The Model of the Economy...54

9.3. Endogenous Child Labor Policy ...59

9.4. Political Repression and Child Labor: Empirical Evidence...61

9.5. Conclusion ...69

Appendix 9A1: Numerical Example of the Dynamic Adjustment Following an Increase in the Penalty p ...77

Appendix 9A2: Proof of Proposition 2 ...79

Part III 10. The Political Economy of International Child Labor Policies ...82

10.1. Introduction ...82

10.2. The Model ...83

10.3. The Consumption Spillovers of Child Labor ...99

10.4. Transfers as a Second Child Labor Policy ...103

10.5. Conclusion ...108

Appendix 10A1: Proof of the Comparative Static Results ...110

11. Summary ...114

References ...120

Zusammenfassung in deutscher Sprache

Kinderarbeit ist besonders in EntwicklungslÄndern ein weit verbreitetes PhÄnomen.

Obwohl es viele Studien von empirisch orientierten Soziologen und Politologen zu die- sem Thema gibt, wurde die Thematik lange vernachlÄssigt. Erst seit den frÜhen achtzi- ger Jahren entwickelte sich eine weit verzweigte Ökonomische Literatur, welche sich mit dem Problem der Kinderarbeit beschÄftigt.

Die vorliegende Dissertationsarbeit zum Thema „Politische ¶konomie“ der Kinderar- beit gliedert sich in drei Teile. In einem ersten Teil wird ein ¼berblick Über die vorwie- gend theoretische Ökonomische Literatur zur Kinderarbeitsproblematik gegeben, wobei ich im Vorfeld zunÄchst Fakten Über die Verbreitung von Kinderarbeit und deren ver- schiedenen Facetten zusammentrage und ich auch auf die Institutionen eingehe, welche sich mit Kinderarbeit beschÄftigen bzw. Kinderarbeit bekÄmpfen. Die Literatur zur Kin- derarbeit lÄsst sich in mehrere Forschungsrichtungen gliedern. Die positive Theorie der Kinderarbeit beschÄftigt sich mit der Bestimmung des Angebots an Kinderarbeit, wobei sich neoklassische und spieltheoretische AnsÄtze unterscheiden lassen. Die normative Theorie der Kinderarbeit in geschlossenen und offenen Volkswirtschaften bezieht die Auswirkung von Kinderarbeit auf die gesellschaftliche Wohlfahrt mit ein und diskutiert politische nationale und internationale Ma¿nahmen zur BekÄmpfung von Kinderarbeit.

Bei nÄherer Betrachtung der Ökonomischen Literatur zur Kinderarbeit treten zwei Fra- gen auf: zum einen erklÄren die bestehenden Modelle nicht, warum Kinderarbeit in den betroffenen LÄndern trotz diesbezÜglicher Gesetzgebung nicht ausreichend bekÄmpft wird, obwohl die gesellschaftliche Wohlfahrt gemÄ¿ der normativen Theorie der Kin- derarbeit in geschlossenen Volkswirtschaften erhÖht werden kÖnnen, wenn Marktun- vollkommenheiten existieren. Zum anderen erklÄren die bestehenden Modelle nicht, warum in entwickelten LÄndern der Ruf nach HandelsbeschrÄnkungen zur BekÄmpfung von Kinderarbeit laut wird, obwohl normative Modelle der Kinderarbeit in offenen Volkswirtschaften nahe legen, dass Kinderarbeit in EntwicklungslÄndern effektiv nur durch Einkommenstransfers bekÄmpft werden kÖnnen.

Im zweiten Teil der Arbeit wird ein politisch-Ökonomischen Modell entwickelt, welches eine Antwort auf die Frage geben soll, warum Kinderarbeit in den betroffenen LÄndern

trotz diesbezÜglicher Gesetzgebung nicht ausreichend bekÄmpft wird. In einem Modell mit geschlossener Volkswirtschaft und Überlappenden Generationen wird angenommen, dass die einzig relevante private Entscheidung, die getroffen wird diejenige ist, ob ein Kind zur Schule geschickt wird oder zur Arbeit. Die Individuen werden als heterogen angenommen, insofern als sie sich in den FÄhigkeiten und in der Tatsache unterschei- den, dass sie gelernt bzw. ungelernt sind. FÜr beide Gruppen – gelernte und ungelernte Arbeiter – gibt es eine kritische „FÄhigkeitsschwelle“, unterhalb derer Eltern ihre Kin- der zur Arbeit und oberhalb derer sie ihre Kinder zur Schule schicken. Diese kritische Schwelle wird von einer Strafe fÜr Eltern, die ihre Kinder zur Schule schicken, beein- flusst insofern dass sie die kritische Schwelle fÜr beide Gruppen nach unten verschiebt.

Allerdings werden diese Kinder, die aufgrund der Strafe jetzt zusÄtzlich zur Schule ge- schickt werden, das Angebot an gelernter Arbeit in der nÄchsten Periode erhÖhen und somit die LÖhne fÜr gelernte Arbeit in der nÄchsten Periode senken und entsprechend die LÖhne fÜr ungelernte Arbeit erhÖhen. Eine autokratische Regierung, die von gelern- ten Eliten dominiert wird, hat somit keinen Anreiz, bestehende Rechtsvorschriften be- zÜglich Kinderarbeit durchzusetzen. Diese Hypothese wird ÜberprÜft, indem ein Panel- Datensatz zugrunde gelegt wird, welcher sich auf 103 EntwicklungslÄnder Über 7 Jahre hinweg erstreckt. Im Vergleich zu vorherigen empirischen Studien zur Kinderarbeit wird eine Variable hinzugefÜgt, welche den Grad der politischen Repression in einem Land misst und als Proxy-Variable fÜr den Grad des Einflusses gut ausgebildeter Eliten auf die Regierung dient. Es wurden sowohl OLS- als auch Tobit-SchÄtzungen ange- wandt und die Robustheitstests der Resultate anhand von Kontrollvariablen ÜberprÜft.

Wie vom Modell vorhergesagt, hat die politische Repressionsvariable einen signifikan- ten Einfluss auf das Ausma¿ der Kinderarbeit, welcher auch durch die Robustheitstests nicht signifikant verÄndert wird.

Im dritten Teil der Arbeit wird zur ErklÄrung des Rufs nach handelpolitischen Ma¿- nahmen zur BekÄmpfung von Kinderarbeit ein politisch-Ökonomisches Modell entwi- ckelt, in welchem die Handelspolitik endogenisiert wird. Das handelspolitische Instru- ment stellt ein Strafzoll dar, welcher Importen aus EntwicklungslÄndern auferlegt wird, wenn die Firmen in diesen LÄndern dabei entdeckt wurden, zur Erzeugung ihrer Pro- dukte Gebrauch von Kinderarbeit gemacht zu haben. Es wird ein 2-LÄnder-Modell ver- wendet mit einem entwickelten Land, in welchem keine Kinderarbeit existiert, und ei- nem Entwicklungsland, in welchem Kinderarbeit vorherrscht. Die Firmen in dem ent-

wickelten Land konkurrieren mit den Importen aus dem Entwicklungsland, welche u.a.

mit Hilfe von Kinderarbeit produziert werden. Ein Strafzoll in dem entwickelten Land wird somit den Firmen in diesem Land nutzen und den Firmen im Entwicklungsland schaden. Die Wirkung des Strafzolls auf die Wohlfahrt der Konsumenten ist nicht eindeutig: auf der einen Seite schadet ein Strafzoll wie jeder Zoll den Konsumenten, auf der anderen Seite hat er zur Folge, dass die Kinderarbeit im Sektor des Entwicklungs- landes abnimmt, in welchem GÜter produziert werden, die von den Konsumenten im entwickelten Land konsumiert werden. Somit stiftet der Strafzoll insofern Nutzen fÜr die Konsumenten in dem entwickelten Land, als diese ihr Gewissen beruhigt sehen, keine GÜter zu konsumieren, die durch Kinderarbeit hergestellt worden sind. Allerdings unabhÄngig davon, was mit den entlassenen Kindern passiert. Dieses Verhalten von Seiten der Konsumenten in dem entwickelten Land wird mit dem Begriff „falscher“

Altruismus bezeichnet. Die Regierung in dem entwickelten Land, welche ihre politische UnterstÜtzung maximiert und sich hierbei von den heimischen Firmen korrumpieren lÄsst, wird unter gewissen UmstÄnden einen Strafzollsatz implementieren, der geringer als der prohibitive Zollsatz ist. Ein Resultat des Modells ist, dass dieser gleichgewichti- ge Strafzollsatz um so hÖher sein wird, je hÖher der Lohnsatz fÜr Kinderarbeit in dem Entwicklungsland ist, wenn das Ausma¿ der Kinderarbeit in diesem Land ausreichend hoch ist. Ist das Ausma¿ der Kinderarbeit nicht sehr hoch, wird ein hÖherer Lohnsatz fÜr Kinderarbeit den gleichgewichtigen Strafzollsatz senken. Der Zusammenhang zwi- schen dem Gleichgewichtszollsatz und dem Lohnsatz fÜr Kinderarbeit kann somit durch eine Funktion beschrieben werden, welche umgekehrt u-fÖrmig verlÄuft. Der kritische Lohnsatz fÜr Kinderarbeit, welcher das Maximum dieser Funktion darstellt, wird um so geringer sein, je hÖher das „falsche“ Mitleid fÜr Kinder ist, die im Exportsektor arbei- ten. Ein weiteres Resultat des Modells ist, dass Transfers als „first-best“-Politik zur Be- kÄmpfung von Kinderarbeit nicht nur deshalb nicht ausschlie¿lich gewÄhlt wird, weil heimische Firmen die Regierung einvernehmen, sondern auch weil die heimischen Kon- sumenten nicht am Schicksal der Kinderarbeiter interessiert sind, sondern nur daran, dass die von ihnen konsumierten Produkten nicht mit Hilfe von Kinderarbeit hergestellt wurden. Somit sind auch die Konsumenten im entwickelten Land dafÜr verantwortlich, dass Kinder, welche durch StrafzÖlle aus dem Exportsektor getrieben wurden, gezwun- gen sind, BeschÄftigungen nachgehen, die eventuell noch schÄdlicher fÜr sie sein kÖn- nen.

1. Introduction

The phenomenon of child labor in developing countries is frequently covered in the media and always stirs up emotions. Recent investigations carried out by the ILO”s Bu- reau of Statistics estimate that in the developing countries at least 120 million children between 5 and 15 are working full time, and more than twice as many (approximately 250 million) work on a part-time basis. This is so even though child labor is illegal in 115 countries including many developing countries of Latin America and Africa where child labor is especially widespread (cf. ILO, 2002). Many people and commentators agree that child labor is an evil that has to be eradicated and that developed countries should contribute to combatting child labor by putting trade restrictions on imports from developing countries if the imports are produced with the help of child labor.

For many years, child labor has been the domain of empirical sociologists and political scientists. Child labor has become a topic for economists only in recent years. Nonethe- less, the economic literature on child labor is by now quite well developed and covers various aspects of child labor ranging from child labor supply models to the normative theory of child labor in closed and open economies. However, the existing predomi- nantly normative literature can not give an answer to important questions raised in the context of the child labor debate. In this thesis we make a contribution to the political economy of child labor policy which is still pretty much a white spot on the map of the economic research agenda. Thus, we drop the assumption that politicians are concerned with social welfare and replace it with a more realistic approach in which politicians are guided by their own self interest.

Before exploring the political economy of child labor, we define in the first part child labor, provide some facts about the extent of child labor and geographical distribution and look at the institutions which deal with child labor. Then we provide a survey of the existing relevant economic literature. A first survey in this field was presented by Basu in 1999. Given the rapidly growing field, it seems expedient to update Basu’s survey and to incorporate the more recent models and approaches concerning the economic aspects of child labor. Although this survey predominantly concentrates on theoretical aspects, some empirical studies will also be included in order to show whether the im- plications of the reviewed models hold in reality.

The main theoretical finding of the normative theory of child labor in a closed economy is that child labor reduces social welfare. The question then arises as to why govern- ments in developing countries do not combat child labor with more zeal by punishing more severely parents who are observed to send their children to work. In order to an- swer this question, we outline in the second part of the thesis a political economic model that explains this puzzle. Our explanation is based on the idea that the educated elite or their children may suffer an income loss if the number of educated people in- creases. If the educated elite has more political power than the uneducated masses, the political process may well give rise to a lenient enforcement of restrictive child labor legislations. Identifying the political power of the educated upper class with oligarchic political repression, we thus hypothesize that the prevalence of child labor resulting from the endogenous leniency of law enforcement varies positively with the degree of repression of the political system. We then test this hypothesis using a panel data set covering 103 developing economies.

The main theoretical finding of the normative theory of child labor in an open economy is that trade restrictions which are put on child labor tainted imports from developing countries in order to make such countries comply with internationally harmonized child labor standards are not the first best measures to accomplish this aim. Rather, the first best policy to implementing such international child labor standards would be income transfers from developed countries to poor families in developing countries. These transfers would compensate poor parents for the family income loss if they send their children to school instead of sending them into employment. The question then arises why demands from interest groups in the developed world persist to enforce interna- tional child labor standards through trade policies. In the third part of this thesis we make again use of the political economic approach and develop a model in which the import competing sector in a developed country benefits from putting trade restrictions on imports produced by child labor. A political support maximizing government would take into account those interests and therefore may want to put a punitive tariff on im- ports produced by child labor. Moreover, we find that a punitive tariff may also give rise to a utility gain of consumers in the developed countries. This is due to “false” al- truism of consumers in developed countries who derive a utility gain if children are not employed in the production of the import good.

The thesis is organized as follows. In the first part (section 2 –4) we define child labor, present some facts review institutions which deal with the issue of child labor. In the sections 5-8 we survey the literature dealing with the economic aspects of child labor.

The literature on the positive theory of child labor will be covered in section 5 while the normative theory of child labor in a domestic and an international framework will be reviewed in sections 6 and 7 respectively. Section 8 explains the need for positive, po- litical-economic studies of child labor policies. In the second part of the thesis ( section 9) we present a political economic model in order to explain why governments of de- veloping countries do not combat inefficient child labor more severely. Moreover, we test the crucial hypothesis empirically. In section 10 we develop a political economic model which explains why there are demands in developed countries to use trade poli- cies in order to achieve compliance of developing countries with international child la- bor standards even though transfers are the first best police to accomplish this goal. Sec- tion 11 concludes.

2. Definition of Child Labor

2.1. Definition of the Term „Child“

As we will see in the following section, measures of child labor diverge substantially.

One reason for this fact is the problem of defining the term „child“ since any estimate of child labor incidence depends on this definition.

The widely ratified UN-Convention on the “Rights of the Child” defines children as persons under the age of 18 unless the age of majority is attained earlier (cf. Basu, 1999). The ILO Convention No. 138 establishes 15 years as the age under which a per- son should not participate in economic activities whereas concerning the worst forms of child labor (Convention No. 182) the ILO applies the term „child“ to all individuals un- der the age of 18 (cf. ILO, 2000). Following Convention No. 138, most scholars, who examine child labor, adopt the age of 15 years for their studies defining a person younger than this age as a „child“ (cf. Basu, 1999). This Convention, however, has been ratified by only about one quarter of the ILO members (cf. ILOLEX, 2003). In sum, there is no general consensus about the definition of the term „child“(cf. Basu, 1999).

From the perspective of Western developed countries the status of childhood is merely determined by chronological age and considered as a kind of rehearsal for adult life in which childrens’ activities should comprise only learning experiences (cf. Schildkrout, 1981). Rodgers and Standing (1981) suggest that it would be adequate to include cul- tural and social factors as well for getting a more widely accepted concept of childhood.

Apprentices in many African countries are not considered children by the society even though they are only 8 or 9 years old. The classification of a person as child or adult occurs by social status rather than age in these countries (cf. Morice, 1981). Following a similar direction in abstaining from defining childhood merely by chronological age, Silva (1981) defines a child as a person who needs adult protection for psychological and intellectual development until able to become independently integrated into the adult world without requiring help usually provided by the family and educational insti- tutions. In many non-Western countries socially and biologically defined life-phases entail different obligations and behaviour patterns where the end of a life-phase, such as childhood, occurs either by clear cut-off points, for example certain initiation rites or a gradual incorporation into adult activities (cf. Rodgers and Standing, 1981).

Thus, it is problematic to relate only „biological age“ to the concept of childhood with- out considering the social framework which also matters for the determination of the life-phase of a person in many developing countries. Doing so, for example by an ILO Convention, may be conceived as „Western arrogance“ by representatives of developing countries, which in turn could be a hinder solving essential problems, such as child la- bor, on an international level.

2.2. Definition of Working Activities by Children.

Another problem that arises in measuring the extent of child labor is related to specify which activities carried out by children are supposed to be considered „ labor“.

Ashagrie (1993) classifies a child as a worker if he or she is economically active. Most international organizations and governments consider a person to be economically ac- tive by if this person works on a regular basis and he or she is either remunerated or the labor output is destined for the market (cf. Basu, 1999). The ILO (1995), for example,

does not consider cooking, child care and other household chores as child labor since it is neither remunerated nor is this “work” used to produce goods. The ILO, however, defines such activities as „child work“ (as compared to child labor) being in a way a

„light version“ of child labor.

In the case of developing countries, though, it is difficult to distinguish between child labor and child work according to the definition of the ILO since a developing country typically has a large number of self-employed persons, who work in situations making the participation of children possible. This results in a merger of domestic and economic roles (cf. Mac Ewen Scott, 1982). Futhermore, Ray (2000) points out that it may be problematic to accept the previous definition of „child labor“ since domestic work could also assume exploitative dimensions if it prevents children from enjoying a „normal“

childhood. According to Ray (2000) and Chandrasekhar (1997), it would be a logical step to extend the „official“ definition of child labor. Thus, a full coverage definition would include all children engaged in some form of productive work at which the term

„productive“ is disassociated either from pecuniary return or from whether such work is within the household or outside. A similar definition of child labor is proposed by Bon- net (1993) who proposes to include all activities performed by children except attending school and occupations that children describe themselves as games.

Contrary to these extensions of the „official“ definition of child labor, Morice (1981) suggests thinking of the concept of work or labor as a simple exertion of physical and intellectual energy when applied to children’s activities. He considers child activities as

“work” or “labor” on the basis of whether it constitutes exploitation. This would impli- cate that a definition of child work or child labor should not only relate to the activity itself but to whether or not exploitation takes place.

2.3. Classification of Child Labor and Child Work

For the analysis and quantification of child labor, it is important to identify different types of activities considered child work or child labor.

Mac Ewen Scott (1982) distinguishes between central and auxiliary functions of child labor. She classifies an activity as child labor, if it forms a central part of the child’s daily routine, provides an essential function for the enterprise involved and constitutes a significant contribution to family income, whereas work of casual and sporadic nature is characterized as „auxiliary“. Morice (1981) makes a distinction between paid work and unpaid work, productive and unproductive work and full-time and intermittent work.

The most detailed and exhausting classification of child activities considered work or labor is provided by Rodgers and Standing (1981). They distinguish the following cate- gories of child work or labor:

domestic work which may enable parents, primarily mothers, to take up non-domestic work and prevent the child’s school attendance. This type of work includes activities such as cleaning, cooking, child care and other domestic chores which suggests that these tasks tend to be sex-typed with girls taking on a disproportionate share of total domestic work carried out by children worldwide.

non-domestic, non-monetary work which includes tasks usually connected with produc- tive activity within the family such as agricultural work, hunting and gathering prod- ucts. The products of this type of work can be either sold or used for auto-consumption.

bonded child labor which occurs mostly in peasant areas in developing countries and refers to unpaid work carried out by children in conditions of servitude in order to pay off a debt incurred by their parents to meet a social or religious obligation or simply to acquire the means of survival. For example, children have to perform a certain amount of work as part of a peasant family’s rent in form of working as unpaid household ser- vants for the landlord.

wage labor which again can be subdivided into different forms. Child wage labor can occur as labor being part of a family labor force or as individual wage work. Casual child wage labor can be differentiated from regular child wage labor. Wage employment of children which is complementary to or compatible with normal schooling can be dis- tinguished from labor which conflicts with it. Furthermore, a distinction can be made between child wage labor which has some training content and wage employment of children without this attribute. In this context the sub-category of apprenticeship arises which also involves some wage payment. This type of child wage labor takes place more frequently in small than in large scale enterprises.

marginal economic activity which comprises work performed by children typically in the informal sector. These activities are characterized by their casual, sometimes illegal, low-income, unproductive nature often described as survival strategies of the sub- proletariat. Child work of this type includes activities such as shoe-shining, selling of newspapers, theft and so forth. Commercial sexual exploitation falls within this type of child labor also expressing itself in child prostitution or pornography.

3. Some Facts about Child Labor

3.1. Figures about the Extent of Child Labor

Estimating the global prevalence of child labor is a difficult task, one reason being the variety of definitions of child labor discussed in section 2. A broader definition of child labor according to the suggestions mentioned in the previous sections will logically re- sult in much higher figures than those reported by international organizations such as the ILO, whose definition is quite narrow. National statistics on child labor are not very reliable sources of information because of the reluctance of the respective governments to admit the discrepancy between official policy and actual practice, which could attract unwanted international attractions (cf. Lansky, 1997). Furthermore, exact data regarding the extent of children working in the informal sector are hard to collect due to the fre- quently illegal nature of these activities.

According to existing „official“ data reported by the ILO, child labor is predominantly a problem of developing countries. Recent surveys carried out by the ILO”s Bureau of Statistics (1996a) estimate that in the developing countries alone there are at least 120 million children aged between 5 and 15 working full-time and more than twice as many (or approximately 250 million) if those whose work is a secondary activity are included.

Moreover, the data reveal that 61 per cent of working children are found in Asia, 32 per cent in Africa and 7 per cent in Latin America. Although Asia has the largest number of child workers, Africa shows the highest incidence of 40 per cent of children between 5 and 14 years old. India is the country with the largest absolute number of child workers.

In order to get a more detailed picture of the magnitude of child labor in the various developing countries, the percentage of children of the relevant age group working as workers, the so called participation rate, has to be examined. Figures relying on statis- tics estimating the participation rates for children between 10-14 years and projected up to the year 2000 show that the participation rate is 11 % worldwide with Africa featur- ing the highest participation rate with a figure of 25 % followed by Asia (10 %.) and Latin America (8 %.) (cf. ILO 1996b). With regard to these figures, Grootaert and Kan- bur (1995) argue that the participation rate for children might be immensely underesti- mated as certain types of work are excluded from the ILO estimates, such as domestic work or other household activities. Applying a more extensive definition of child labor, the participation rate might be more than 40 % in certain developing countries such as the Phillipines and India. In this context, Weiner (1996) points out that in India there is a huge difference between the number of children which are „officially“ considered child workers and the „inofficial“ number of working children which also includes mi- nors engaged in work not considered child labor according to the ILO definition. He estimates that the number of child workers more than doubles from the official 44 mil- lion up to 90 million working children when children performing domestic tasks not covered by the ILO definition taken into account.

Figure 1: Participation rates for children, 10-14 years. Projection for 2000 Source: ILO 1996b

3.2. Sectors in which Children are Employed

In the more developed countries the majority of working children carry out activities in agriculture, in family or non-family undertakings during the school holidays and outside school hours. The children not engaged in agriculture are employed in the urban sales or distribution sector (delivering papers, milk, etc. ), in hotels and restaurants and in light and occasional jobs especially in holiday resorts and during the school holiday (cf.

Mendelievich, 1979).

Contrary to child work in developed countries, the issue in the developing countries is often characterized by three disturbing aspects. First, a significant number of children is involved in working activities at a very early age. Second, many of them are exposed to highly exploitative employment relations and/or to hazardous working conditions.

Third, a large number of employed children work for excessively long hours without being provided with adequate nutrition, health care and eductation. (cf. Bequele and Boyden, 1988).

Latin America & Carri- bean: 8.21 %

Africa: 24.92 %

Asia: 10.18%

The work performed by children in the developing countries is manifold and covers various sectors. According to the ILO (1996c), the vast majority of child workers in the developing countries are unpaid family workers employed in small production units of the urban informal sector often not registered as such and in the rural traditional sector.

In the agricultural sector of developing countries children usually begin their economic activity at an age of 5 or 7 years where they work with their parents either on the family plot or for a third party as part of a work team performing tasks such as looking after animals, sowing, reaping, spreading fertilizer and ploughing (cf. Mendelievich, 1979).

The mostly informal industrial sectors of developing countries in which children are employed range from ceramic and glass factories where minors carry molten loads of glass to firework industry in Southern India where children produce matches in small scale village factories. Children can be found in carpet making and subcontracted gar- ment work in Pakistan and India and in mines in Africa, Asia and Latin America where they are often exposed to poor and hazardous working conditions (cf. ILO, 1996a).

Within the service sector children in developing countries are often engaged in activities which can be assigned to the so called urban informal service sector where they perform activities such as cleaning shoes, guarding parked cars, collecting junk, selling food and magazines and so forth (cf. Mendelievich, 1979). A service activity carried out mostly by girls and whose extent is hard to measure due to its hidden nature is domestic service which is a widespread practice in many developing countries. Studies referring to this type of child labor estimate that 22 % of working children in Brazil and over 5 million minors in Indonesia are employed in services of which domestic service is the main occupation whereby the majority of child domestic workers tend to be between 12 and 17 years (cf. ILO, 1996a). The most hideous kind of activity assigned to the children in the informal service sectors is commercial sexual exploitation. According to the ILO (1996a) about one million children in Asia are estimated to be victims of abduction or- ganized by international networks selling children to brothels across national borders.

Commercial sexual exploitation of children, however, is not limited to Asia. Indeed, there is evidence of increasing child prostitution in Latin America and numerous Afri-

can countries caused among other determinants by international sex tourism (cf. ILO, 1996a) .

Concerning the employment relations, child work often appears as bonded child labor which occurs most frequently in acgriculture where children are employed by landlords to help pay off a loan or other obligation incurred by their family (cf. Tucker, 1997).

This type of child labor has long been reported from West Africa, South East Asia and South Asia and, above all, India where it is, although illegal, widespread in various forms as well in domestic and export industries such as silk, beedi (hand-rolled ciga- rettes), silver jewelry, synthetic gemstones, leather products, handwoven wool carpets and in informal service sectors such as prostitution, hotel, truck stop and tea shop ser- vices and domestic servitude. (cf. Tucker 1997).

4. Institutions Concerned with Child Labor

The institutions dealing with the issue of child labor can be subdivided into institutions operating on a national, extra-national and supra-national level.

4.1. Intra-national Institutions

Institutions dealing with child labor on a national level are based on country specific legislation such as compelling schooling laws and legal minimum age for employment, governmental intervention programs, organizations installed to enforce the law and non- governmental organizations and programs to curb child labor. Depending on cultural, social and economic factors, these institutions differ substantially across various na- tions (cf. Basu, 1999).

Legal minimum age for employing persons, for example, is set higher in developed countries than in the Third World countries where different cultural and social norms prevail (cf. Basu, 1999). Nepal”s Children”s Act of 1992 prohibits children of age 13 years or less from doing any work as employed workers while in most developed coun- tries the legal minimum age is established at an age of 15 years and older (cf. Basu,

1999). Moreover, according to the diversity of the predominance of different types of child labor across the various developing countries, there exist different adequate intra- national programs in order to eradicate or combat child labor. In Thailand, for example, a country, which suffers from its bad reputation for child prostitution, the Daughter”s Education Programme (DEP) has been founded to provide education for young girls in Northern Thailand (cf. Basu, 1999).

4.2. Extra-national Institutions

Extra-national institutions dealing with child labor are based on legislation and other measures enacted in developed countries in order to curb child labor in developing countries (cf. Basu, 1999).

The most important example in this context is the Child Labor Deterrence Act discussed in the USA in 1995. The aim of this law was to prohibit the import of goods in the USA produced with the help of child labor (cf. Krueger, 1996). Another example is the Sander”s Ammendment which seeks to disallow the import of goods which have been produced by unfree or bonded child labor (cf. Basu 1999).

Social labelling initiatives play an important role within the category of extra-national institutions (cf. Hilowitz, 1997). In recent years some non-governmental organizations in developed countries have used labelling as an instrument for reducing child labor or for alleviating the ill effects of child work in order to provide information to consumers with the help of a label assuming that the products they purchase have not been pro- duced by children. The goal of those labelling initiatives is to induce producers to re- duce child labor or to improve child workers’ conditions. This is supposed to work since consumers prefer labelled products and services. In addition to this, most labelling ini- tiatives targetting child labor directly contribute to the improvement of child worker’s conditions by providing them with schooling or rehabilitation projects. Types of label- ling differ across the various initiatives. Some initiatives, for example, label individual products whereas others label entire retail establishments. While some initiatives moni- tor production sites to ensure the label’s claim, others abstain from this method expect- ing the individual producers to monitor themselves. The most prominent labelling initia-

tive is the Rugmark Programme which has resulted from the collaboration of several religious, consumer and humanitarian groups and is applied to hand-knotted carpet pro- duction in South Asia. The label guarantees that no use of child labor was made to pro- duce the carpets. The initiative consists of several foundations dealing with imports, marketing and publicity. The Rugmark foundations in South Asia have the task of moni- toring carpet producing sites of firms which have adopted the Rugmark”s label and of guaranteeing that the entrepreneurs have refrained from the use of child labor (cf.

Hilowitz, 1997).

Another type of extra-national market-based initiative used to combat child labor is the adoption of codes of conduct by companies in developed countries operating multi- nationally (cf. Hilowitz, 1997). In such codes companies commit themselves to elimi- nating child labor by formulating a social and economic charter of good practices ob- served closely by the ILO and other international organizations. By adopting these codes of conduct, they formally agree to increase monitoring and control among their wholesalers and subcontractors in order to prevent the use of child labor (cf. Hilowitz, 1997).

4.3. Supra-national Institutions 4.3.1. The ILO

4.3.1.1. Organizational Structure and Functions of the ILO

The third category of institutions dealing with child labor are those operating on a su- pra-national level. The most important institution in this context is the ILO. which was founded in 1919 as an outgrowth of the Treaty of Versailles designed to guarantee so- cial justice and to prevent countries from gaining a comparative advantage by maintain- ing inhuman conditions of labor (cf. Maskus, 1999). The ILO was established as the primary international body dedicated to the adoption of international labor legislation by implementing and monitoring international labor standards (cf. Maskus, 1999). The consequences would be a greater harmonization of rules and regulations for the protec- tion of workers and thus a reduction of the differences in the labor costs between coun- tries caused by conditions of labor which are considered „unfair“ (cf. Servais, 1989).

The ILO, which is part of the UN since 1946, is characterized by a tripartite organiza- tional structure involving an annual legislative conference of labor, business and gov- ernmental representatives of member nations, a 56-person governing body which con- sists of 28 governmental representatives and 14 representatives of both worker and business organizations, and a Secretariat in Geneva (cf. Maskus, 1999). International labor standards are established via international conventions that are binding only for ratifying member countries, which means that that the convention will be written into national law. The ILO, however, is not empowered to enforce compliance with ratified conventions. Instead, the ILO relies on persuasions, advice and international pressure.

In this context the ILO acts as a clearing house and publicity mechanism for complaints regarding either governmental or private actions contravening national obligations in labor standards while each of the tripartite representatives (of labor, business, and gov- ernment) in each country has the right to complain about practices not corresponding to ratified conventions in its own country. The ILO examines these complaints and the results are publicized. Furthermore, national actions are monitored and governments are required to report on labor conditions and to justify their action referring to working conditions (cf. Maskus, 1999).

Within the ILO a graduation of international labor standard exists in which the freedom from the exploitation of child labor is considered a basic social right assigned the status of a „core labor standard“ to (cf. Maskus, 1999).

4.3.1.2. Conventions Concerning Child Labor

The first convention dealing with child labor was established at the very first session of the ILO in 1919 at which the minimum age for admission of children to industrial em- ployment was fixed at an age of 14 (cf. Swepston, 1982). In the following years, various conventions and recommendations were adopted in order to define the conditions under which children may be allowed to work and to set minimum ages for employment in different sectors of economic activity such as industry, non-industrial employment, ag- riculture, underground work and seafaring. This resulted in ten conventions established on this subject between 1919 and 1965. In 1973, Convention No. 138, Minimum Age was established in order to install a general instrument for dealing with this issue and to

replace the existing conventions referring to child labor which were only applicable to limited economic sectors (cf. Swepston, 1982).

Convention 138 established a basic minimum age for admission to employment which was not allowed to be less than the age of completion of compulsory schooling or less than 15 years of age (cf. Swepston, 1982). In general, it applies to all sectors of eco- nomic activity and covers children whether or not they are employed for wages. The Convention No. 138 condemns the imposition of labor on children which goes beyond children”s physical and mental ressources or which interferes with their education. Na- tions whose economy and educational facilities are insufficiently developed are allowed to establish a basic minimum age of 14 years. There are, however, exceptions from the coverage of Convention No. 138 which fall into two categories: exclusion of certain types of employment or work and exclusion of certain branches of economic activity.

Article 4 of the Convention allows for certain types of work to be excluded from cover- age if the application is not possible due to legal difficulties or problems of law en- forcement. Categories of work falling under this article include, for example, employ- ment in family undertakings, domestic service in private households, home work or other work outside the supervision and control of the employer. Employment, however, which is detrimental to the health, safety or morals of the children is not allowed to be excluded from coverage of Convention No. 138. Article 5 allows the exclusion of an entire economic sector. This article states that a country is allowed to limit the range of validity of Convention 138 by declaring it applicable only to certain economic sectors due to insufficiently developed administrative facilities and an underdeveloped eco- nomic system. According to this exemption, family and small-scale enterprises which produce for local markets and do not regularly hire workes are not prohibited to employ children per se. Moreover, Convention No. 138 offers added flexibility by allowing lower minimum ages for light work and by setting an 18-years of age standard for hazardous work. Article 7 of Convention No. 138 allows light work from the age of 13 (or 12 if the country concerned has set 14 as the basis minimum age) while light work is defined as activities not harming the health or development of children and not preclud- ing them from attending school or participating in vocational orientation. In Article 3 of the Convention the basic principle is laid down that a minimum age of at least 18 years shall be established for „hazardous work“ defined as employment jeopardizing the health, safety or morals of young persons. Exceptions are permitted for workers aged

16-18 under the condition that they are adequately protected and trained. (cf. Swepston, 1982).

A rather new Convention dealing with the issue of child work is Convention No. 182 adopted in 1999 concerning the prohibition and immediate action for the elimination of the worst forms of child labor (cf. ILO 2000). This convention was established since the ILO holds that new instruments were required to eradicate the worst forms of child la- bor immediately and comprehensively. This convention should contribute to the already existing conventions and programs taking into account the importance of free basic edu- cation and the need to remove the children affected by all such work. In contrast to Convention No. 138, in the new convention a „child“ is considered to be a person under the age of 18. The term „worst forms of child labor“ covers all forms of slavery or prac- tices similar to slavery such as the sale and trafficking of children, debt bondage, serf- dom and forced or compulsory labor as well as work which by its nature is likely to harm the health, safety and morals of children. Moreover, it includes the use, procuring or offering of a child for prostitution, for the production of pornography and illicit ac- tivities (cf. ILO 2000).

Other conventions which also comprise the issue of bonded child labor are the Forced Labor Convention No. 29 (1930) and the Abolition of Forced Labor Convention (1957) focusing on the issue of compulsory labor condemned by the ILO (cf. Maskus, 1999).

Forced labor is defined as work performed under threat of penalty and extracted without a voluntary offer by the worker. Exceptions allowing compulsory labor is work man- dated by the government if it is in the public interest and in response to imminent neces- sity such as impending war, or for normal civic obligations, compulsory military service and work carried out by convicted prisoners in the public interest (cf. Maskus, 1999).

4.3.1.3. IPEC

In addition to establishing international child labor standards by conventions, the ILO concentrates on direct interventions to combat specific cases of child labor. The ILO has targeted this issue by launching its „International Progamme on the Elimination of Child Labor“ (IPEC) in 1992 also described as the ILO”s operational arm in the fight against child labor (cf. Lansky, 1997).

IPEC”s prior task is to eradicate the most abusive and exploitative types of child labor.

The priority target groups of the IPEC are children who are particularly vulnerable such as children working in bondage or in hazardous conditions and very young children (cf.

Lansky, 1997). The aim of IPEC is to strengthen the national capacities to address the problem of child labor and to encourage a worldwide movement against child labor. Its strategy is based on the commitment of individual governments to take measure against this problem in cooperation with employers’ and workers’ organizations and other non- governmental organizations and institutions. This strategy is characterized by a phased, multi-sectoral approach. The first step is a situational analysis of the nature and magni- tude of child labor in a given country followed by subsequent steps which comprise support in national policy design, institution building, awareness rising, development and application of child labor legislation and assistance concerning national initiatives and direct actions. Thus the task of IPEC is to support national efforts dealing with the issue of child labor rather than to prescribe individual nations what measures have to be taken (cf. Lansky, 1997).

The actual IPEC programs can be subdivided into action programs concerning specific issues and mini-programs helping partner organizations to carry out preparatory activi- ties for possible future action programs and IPEC activities (cf. Lansky, 1997). Most of the action programs aim to prevent children from performing intolerable types of child labor by supporting the provision of educational measurements such as non-formal edu- cation and skill development programs or to withdraw children from this category of child labor (cf. Lansky, 1997).

4.3.2. Other UN-Declarations and Conventions

Besides the ILO, the United Nations has addressed the issue of child labor by adopting the United Nations Declaration on the Rights of the Child in 1959. This states that chil- dren are not to be admitted to employment before an appropriate minimum age and are not to perform activities which are detrimental to their health, education and their physi- cal, mental or moral development (cf. Lansky, 1997). This declaration was followed by the establishment of the United Nations Convention on the Rights of the Child in 1989 providing for extensive protection which is guaranteed all children under 18 (cf.

Lansky, 1997).

Moreover, the United Nations Commission on Human Rights adopted a Programme of Action for the Elimination of the Exploitation of Child Labor in 1993 which called upon all nations to ratify the Convention of 1989 (cf. Lansky, 1997). In addition, it stressed the importance of fully implementing Article 32 which states that nations shall recog- nize the right of the child to be protected from economic exploitation, hazardous work and employment which is harmful to children’s health or physical, mental or social de- velopment. Furthermore, Article 32 establishes that all states’ parties shall provide for a minimum age of admission to employment, for appropriate regulation of conditions of employment and for adequate penalties to ensure the effective enforcement of the Arti- cle. In addition to this, the Programme of Action urges states to ratify the ILO Minimum Age Convention 1973 (No. 138) (cf. Lansky, 1997).

5. The Positive Theory of Child Labor 5.1. Culture versus Poverty

Many scholars who analyse the phenomenon of child labor consider cultural factors such as family or kinship structure and its resulting obligations as the prevailing causes of child labor supply (cf. Ennew, 1982; Schildkrout, 1981; Mac Ewan Scott, 1982).

Instead of focussing on those factors, Bekombo (1981) and Bonnet (1993) consider the nature of child work itself as a socialisation strategy which functions as a means of transmitting knowledge in African societies.

The relevance of these sociological factors with regard to the determination of child labor patterns should not be exaggerated however. Goode (1963), for example, points out that family structure as an explanation of the emergence of child work changes in response to economic needs. In addition to this finding, Grotaart and Kanbur (1995) state that poverty is the major cause of the occurrence of child labor. Mendelievich (1979) found out that poverty was the driving force behind every case of child labor is poverty when he examined a study undertaken in Bangkok among several hundred working children. This study revealed that the main explanation as to why they were working proved to be poverty and the need to assist parents in household economic ac- tivity. These insights suggest analysing the incidence and the pattern of child labor from an predominantly economic point of view.

Inthe sections 5.2. and 5.3., we survey the economic approaches which explain the sup- ply of child labor. Then we turn in section 5.4. to empirical studies which make an at- tempt to discriminate between the economic and the cultural approaches.

5.2. Neo-classical Child Labor Supply Models

An important class of models explaining the extent and causes of child labor are neo- classical household models. The basic premise is that the family as a unit actor maxi- mizes a household welfare or utility function in which the preferences of all family members are taken into account subject to constraints on the time available to each fam- ily member and the market value of that time. In addition to the determination of child labor supply, the neo-classical allocation models typically tend to simultaneously ex- plain other types of child activities, such as attending school, which is considered to be the alternative to child labor.

Applying this approach to explaining child labor supply, Rosenzweig (1981) considers a household utility depending on a jointly consumed good, leisure of both the mother and the father, the leisure and schooling level of each child and the number of children.

Child leisure and schooling are assumed to augment the child’s welfare and thus the household utility function implies parental altruism. The family or the family’s decision maker maximises this utility subject to a budget constraint which takes into account expenditures such as the consumption of resources caused by each birth, schooling

costs, purchased goods and the time of each household member not used in market ac- tivities. Those expenditures have to be equal to income where all prices are assumed to be exogenous. Rosenzweig points out that the effect of a change in an exogenous vari- able on the optimal value of child labor supply can be decomposed into an utility con- stant price effect and a price constant income effect which can not be predicted by the model without further empirical information. From the analysis of the former effect, it can be concluded that both a rise in the value of children’s market time and a decrease of a parent’s wage rate due to cross price effects leads to a substitution towards more child labor.

While Rosenzweig makes no difference between a male and a female child, Goldin (1979) introduces gender-specific attributes in her model. The leisure of the sons and daughters enter the utility function separately as arguments. The remaining arguments of this function are a household-produced good which in turn makes use of a purchased good, the mother’s entire time and the son’s and daughter’s time spent working at home. While no allocation decision concerning the parents” time occurs, children’s time is apportioned between time spent working in the labor market, time devoted to house- hold-production and time used for leisure. Maximization of this utility function subject both to time constraints for each family member and to a budget constraint, which takes into account the purchased good as expenditure and the labor income of the children and the father as revenue, gives rise to conclusions regarding gender specific child labor supply patterns. If, for instance, daughters and their mothers are substitutes in the pro- duction of the household-produced good, the death of the mother could cause the daughter’s marginal product in home production to rise and lead to more of the daugh- ter’s time being used at home with maybe less of the son’s time being used. The loss of the father reduces the demand for leisure and is liable to shift all children into the labor force and home production.

Instead of using a static approach as Rosenzweig and Goldin, Parsons and Goldin (1979) employ a dynamic two-period approach to explain child labor supply which al- lows the authors to include the human capital market and the physical capital market in their analysis. They consider child labor and school attendance as outcomes of actions on those markets. The parents are assumed to maximize aggregate family wealth in the form of a log-linear utility function which depends positively on the parents” own con- sumption in both periods and (if they are altruistic) on the second period consumption

of their children (the period in which the children are adults). Considering education of children as a pure investment good, the parents can either invest in human capital (the education of their children) or in physical capital. The budget constraint of the house- hold is influenced by the degree of capital market perfection and the extent of parental control of their offspring’s income in the two periods. Parsons and Goldin show that imperfect capital markets and full control over all future family income may cause par- ents to send their children to work since borrowing on the capital market is expensive compared to borrowing across generations, i.e. not investing in human capital. More- over, imperfect control over the future income of offspring gives rise to child labor if parents are assumed to be non-altruistic towards their children since investments in hu- man capital will only benefit the children who fully control their own adult income.

With perfect capital markets in combination with imperfect control over children’s in- come, however, altruistic parents will always send their children to school since they can lend and borrow as they wish at the physical capital market, whereas with an imper- fect capital market even altruistic parents are compelled to borrow on the “human capi- tal market”.

Cigno (2000) assumes that parents have no access to capital market at all. He focuses on explaining the allocation of a child’s time with fertility and mortality determined endogenously and with the decision problem faced by parents decomposed into two stages. At the first stage, parents choose optimally the number of births and decide how much to spend for each pre-school child under conditions of uncertainty about how many of those children will still be alive at the second stage. When the number of survi- vors is known at the second stage, parents decide how much to spend for each school- age child and how to allocate the time of these children between work and study. He assumes that parents control fertility and condition the survival probability of their chil- dren at various points of the life-cycle through expenditures on certain items. Thus the utility function of the parents contains the consumption by adults and by each child (if parents are assumed to be altruistic towards their offspring) at the various stages, human capital assigned to each child and the number of children alive at the beginning of the second stage. The expense accruing at the second stage comprise the cost of human capital which in turn depends on children’s time spent at school, child wages and the quantity and the prices of other educational inputs. Concerning child labor supply, the probability that the child will work or study (part or full time) depends on full income, number of siblings and the marginal cost of human capital. A rise in income in the sec-

ond period will decrease the probability that a child will work full time. The effect of an increase in the child wage rate increases the probability of full-time work and decreases the probability of full-time study.

Contrary to the previous models, Rosenzweig and Foster (2001) take into account the demand side of the child labor market as well. They employ a two-period general- equilibrium model of human capital acquisition and examine how technological change and school availability influence the decisions of landless and landed households on whether to send their children to school or to work and how those choices interact through the adult and child labor markets. With parents and children in landless house- holds being employed by landed households, household income in landless households arises only from the wage labor of both adults and children. Income in landed house- holds is, however, obtained from the wage of both children and adults and the profits from agricultural production using adult and child labor. Thus, schooling investment of landed households in the first period increases productivity in the second period. If technology is expected to improve, at a given school availability the expected returns to schooling among landed households increases. Thus they will allocate more of their children’s time to school attendance. This in turn leads to the landed households substi- tuting their children with landless children as substitute workers. Thus the opportunity costs of schooling rises for the landless. A higher school availability, however, may offset this reduction in landless household schooling investment.

5.3. Game-Theoretic Approaches

Another strain of approach to explain child labor are models which allow for the possi- bility that the supply of or the wage of child labor is the result of strategic interaction between actors affected by child labor such as child workers, parents or employers de- manding child labor.

A model developed by Gupta (2000), which makes use of the concept of a Nash- bargaining game and of the consumption efficiency hypothesis, treats the employer and the parents (guardian) of the child as the agents involved in bargaining the child wage.

Since a child worker does not make labor supply decision on his or her own, Gupta sup- poses that the child’s wage rate and the allocation between the child worker’s consump-

tion and its guardian’s consumption are determined jointly by the employer and the guardian who is assumed to be non-altruistic. In his model, one part of the child wage is paid in the form of meals, which the child is compelled to consume at the worksite, and the other part is paid to the guardian in cash. According to the consumption effi- ciency hypothesis, the efficiency of the child worker varies positively with his level of consumption. Considering a Nash bargaining game between the employer and the guardian, they jointly maximize their income which they obtain from the child’s work with respect to the child’s wage rate. In equilibrium, the child receives part of its wage in form of meals whereas the amount the employer is to pay including meals and cash is a wage per unit which is equal to the arithmetic mean of the marginal productivity and the average productivity of the input “child labor”. The difference between this wage rate and the meals for the child is the payment to the guardian. This unproductive ex- penditure is the result of the guardian’s bargaining power. Exploring child labor supply, Gupta extends his model by incorporating an adult labor market which is assumed to be competitive and a substitute for child labor. Supposing that the employer can make a profit given an exogenous adult wage rate, joint income maximization with respect to child wage results in an equilibrium wage less than in the case without the adult labor market since the disagreement payoff in the bargaining game has changed. Hence, an increase in the adult wage rate causes a rise in the cost of employing a child worker.

Since the part of the wage which is consumed by the child worker remains unchanged and the entire benefit of the rise in the child wage rate is restricted to the guardian, par- ents will be interested in increasing the supply of child workers.

Instead of considering bargaining between an employer and a parent, Basu (1999, p.

1096-1098) assumes that bargaining with regard to child labor supply occurs within the family. He thus assumes that the household is not a single conflict-free unit of decision- making but an area of bargaining where the bargaining power both of the parents and the child depends on the resources one brings to the household and their fallback op- tions. Basu adopts this model further to explain child’s participation in the work force.

He thinks of the household as facing a collective maximization problem where the household’s utility function is a weighted average of the utility functions of a parent and child and where each person’s utility depends on the amount of good consumed by each person and the leisure of the child. The weight attached to the parent’s utility is deter- mined by the incomes of the parent and the child, which entails that the distribution of household’s total utility depends on who brings in how much money. Thus the decision

maker is an amalgam of the members of the household with the preference of each member receiving some weight. The household maximizes its collective utility with respect to the good’s consumption by each household member and child’s leisure sub- ject to a budget constraint with wage rates of the child and the parent being assumed to be exogenously given. In equilibrium, a child labor supply function is obtained which depends on the adult wage and the child wage that prevail on the market.

5.4. Empirical Studies

Empirical studies which examine the economic determinants of child labor focus mostly on the impact of various economic variables, such as wages, on the allocation decision within the family concerning whether to send children to work or to school. More pre- cisely, trade-offs and reallocations caused by changes in those exogenous variables and the influence of family structure on those decisions are examined. In this context, a few studies test the assumption made in theoretical models regarding parental altruism to- wards their offspring. Thus the question is addressed whether poverty compels parents to send their children into employment or if there are exploitative motives as well.

One proposition of all the models in section 5 is that changes in relative wages of the family members including children induce significant intra-family reallocations of re- sources. If, for example, the child wage rises, more of a child’s time is being used for child work. Employing a time allocation survey of a four-year-panel of households in rural India, Skoufias (1994) found evidence that changes in adult or child wage rates have a significant effect on the extent of time allocated in any given activity by children already participating in that activity. Evidence from 19^th century USA confirm the correlation between parent’s wages and child labor. Goldin (1979) explored the determi- nants of the labor force participation of children over ten years old using micro-level data from Philadelphia in the year 1880. She found that the father’s wage was nega- tively related to his child’s labor participation and that parental unemployment sent boys and girls into the labor force with a stronger impact on the boys.

All the neo-classical child labor supply models in section 2 allow for the possibility of parents being altruistic towards their children, which means that parents send their chil- dren to school if their own income is sufficiently high. Using family-level data from an 1890 survey of working-class families in the US, Horan and Hargis (1991) found that the level of family resources determined whether parents send their children to school or to work. Higher levels of resources caused higher rates of children’s school enrollment and lower rates of children’s participation in labor force. Walters and Briggs (1993) conducted a study of the determinants of employment and school enrollment among black and white children in both Carolinas in 1910. Their findings in regard of children working in the non-agricultural industry were consistent with the results of the study of Horan and Hagis concerning the existence of a trade-off between school enrolment and child labor. Using more recent data from Zambia, Jensen and Nielsen (1997) came to nearly the same conclusion as Walter and Briggs. Contrary to the findings of those stud- ies, a study of intergenerational relationships within late nineteenth-century industrial families carried out by Parsons and Goldin (1989) reveals that parents did not have strong altruistic concerns for their children. The reason cited was that the family pro- vided little (in the form of gifts and bequests) to compensate formerly working offspring for their lost schooling and thus future earnings. Indeed, the increased family income was absorbed in higher current family consumption implying a willingness on the part of working-class parents to sell cheaply the future income streams of their children for current consumption purposes. Ray (2000) used more recent data from Peru”s 1994 Liv- ing Standards Measurement Survey and Pakistan”s 1991 Integrated Household Survey to examine whether parents behave altruistically towards their offspring when making child labor decisions. He tested the hypothesis that a family will send their children to the labor market only if the family’s income from non-child labor sources drops very low, which would imply parental altruism. In such a case, parents would reduce their children’s work involvement if their own wage conditions improve. The results of his study reveal that this hypothesis is rejected on Pakistani evidence. Rather it is observed that rising wages of adult female labor in Pakistan lead to increased participation of children in the labor market. However, the results lend weak support for the parental altruism hypothesis to be true for Peru. Mancacorda (2003), however, defines parental altruism by only considering parents unaltruistic or selfish towards their children if they themselves do not work while their children do. Using 1920 US Census Data, Mana- corda finds that a rise in the proportion of working children by household includes a fall