Perverse consequences of well-intentioned regulation: Evidence from India’s child-labour ban

Prashant Bharadwaj, Leah Lakdawala, Nicholas Li, 5 December 2013

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Despite decades of near universal opposition to it, child labour is endemic. According to a recent report by the International Labour Organization, there are nearly 168 million child labourers, of whom 85 million work under hazardous conditions (ILO 2013).

There are many policy options to readdress this. Bans and regulations against child labour are among the most popular worldwide.

  • When perfectly enforced, bans force employers to forgo the use of child labour.

However, it is not clear that such laws will always lead to reductions in child labour. In reality, governments in countries where child labour is prevalent, rarely have the capacity and resources to perfectly enforce regulations on child employment, as documented in a recent study by economists Eric Edmonds and Maheshwor Shresthra (2012).

According to a simple model by Kaushik Basu (2005), when bans are imperfectly enforced, they raise the cost of hiring children, as employers anticipate facing stiff fines or other penalties when caught using child labour.

  • Thus, when imperfectly enforced, bans may simply lower the wages that children are paid.

If families send their children to work out of necessity, this can have perverse effects, as it lowers the income for families relying on child labour.

  • Therefore, a drop in child wages may compel families to supply more child labour, rather than less.

What does the research say?

What effect do child-labour bans have in practice? In a comprehensive review in a 2007 article, Eric Edmonds concludes that “despite all this policy discussion, there does not appear to be any study of the effectiveness of restrictions on work that would meet current standards of evidence.” In order to fill this critical gap in the literature, we use individual-level data from national employment surveys to study the impact of India's flagship legislation against child labour – the Child Labour Prohibition and Regulation Act of 1986. Although the 1986 Act was not the first child-labour law enacted in India, it put in place a more uniform and stricter code, and most recent articles in the press cite this law as the starting point for legal action against child labour in India. The Act targeted children under the age of 14.

  • We show that after the ban, overall employment levels of children under the legal working age of 14 (relative to those of legal age) rose, rather than fell.

Children under 14 are 1.7 percentage points more likely to work after the ban; given that around 14% of children under 14 were employed before the ban, this amounts to a 12% increase in child employment. This seems to stem in part from the large drop in child wages, which fall by nearly 4% relative to adult wages after the ban. The decrease in child wages is particularly large in the manufacturing sector – the sector targeted by the ban itself.

When we focus on children with siblings in the 10-13 age group – those who are likely to be affected by the ban – we find they are about 5.6% more likely to be pushed into work in response to the ban.

  • In line with the theoretical predictions from Basu (2005), the effects seem to be concentrated among the poorest families – those whose head of the household has less than a secondary education, and whose food consumption is largely made up of cheap calories from staple foods.

Moreover, we find some evidence that children are being taken out of school in order to work. Children with siblings age 10-13 are less likely to be in school after the ban. Finally, we show that other key components of household welfare, such as per capita expenditure and assets, seem to decrease slightly after ban. This suggests that overall the ban may have made households worse-off.

Concluding remarks

Our results are important for understanding the impacts of such bans in settings where people live at the margin of subsistence, and where legal enforcement is weak. These results are particularly important given the current policy climate in India, which involves legally guaranteeing certain ‘rights’, such as the right to employment (NREGA), or the right to education. While such policies could have beneficial effects, understanding how such rights interact with the broader context of corruption and behavioural responses of poor households is crucial.

Perhaps most relevant to our findings, in February 2013 a bill was introduced to the Parliament of India calling for the abolition of all forms of child labour. Among other provisions, the proposed bill also calls for increased monitoring and punishment for violators of such laws. The results of our paper caution against such policies in the presence of broader institutional and market failures.

Our findings do not discourage all forms of government-led policies against child labour. There are many options available to policymakers who wish to reduce the incidence of child labour, such as cash transfers to families, and increasing investments in education. If anything, we think a discussion in policy circles about these alternatives should be heightened since it appears from our study that child-labour bans of the type instituted under the Child Labour Prohibition and Regulation Act of 1986 can be ineffective.

References

Basu, K (2005) “Child labour and the law: Notes on possible pathologies” Economics Letters 87(2), 169–174.

Bharadwaj P, L Lakdawaka and N Li (2013), “Perverse Consequences of Well Intentioned Regulation: Evidence from India’s Child Labor Ban”, NBER Working Paper 19602.

Edmonds, E V (2007) “Child labour”, Handbook of Development Economics 4, 3607–3709.

Edmonds, E V and M Shrestha (2012) “Impact of minimum age of employment regulation on child labour and schooling”, IZA Journal of Labor Policy 1(14), 2–28.

Topics: Development
Tags: child labour, India

Assistant Professor in the Department of Economics, University of California San Diego

Assistant Professor in the Department of Economics, Michigan State University

Assistant Professor in the Department of Economics, University of Toronto