Growth and Inverted u in Child Labour: a dual Economy Approach

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Economic growth can result in an increase in child labour, according to research by Nigar Hashimzade and Uma Kambhampati. When overall economic growth is driven by growth in agriculture productivity, this raises the demand for labour generally and can increase the likelihood of using child labour if children are employed in the agricultural sector.
The study, presented at the Royal Economic Society’s 2010 annual conference, examines the 2004 Indian National Sample Survey and estimates that a significant rise in agricultural productivity from the Indian average would result in around 330,000 more working children. These results run counter to the common belief that economic growth has an unambiguously positive effect of reducing child labour.
While growth in overall productivity increases schooling and decreases child labour, growth in agricultural productivity seems to result in increased child labour, especially for girls. But in some relatively prosperous Indian states, such as Gujarat and Punjab, higher agricultural productivity leads to more education as well as more child labour.
The authors conclude that while policy-makers tend to see economic growth as the ultimate solution to the problem of child labour, the relationship is far from clear and requires careful examination.
Our main finding is that economic growth can result in an increase in child labour. This outcome is determined by a combination of factors, including the sector that is driving growth in the economy and the efficiency of schooling. The prediction of our theoretical model is consistent with the empirical results drawn on the Indian National Sample Survey data for 2004.
We find, in particular, that productivity growth in agriculture by one standard deviation from the sample mean results in an increase in the probability of child work by about 0.132 percentage points. On the scale of India, where the number of children between ages 5 and 15 is currently about 250 million, this translates into about 330,000 more child labourers.
With child labour being popularly considered to result from poverty, many policy-makers, reviewing international evidence, argue that the best panacea for child labour is economic growth. In this context, growth is seen to decrease child work directly by increasing household incomes or, indirectly, by influencing the infrastructure and the environment in which the child lives.
We argue, however, that growth may shift both the supply of and the demand for labour, including child labour, and the overall effect may, in fact, be an increase in the amount of child labour employed.
We derive the effect of growth on child labour in the framework of a dual economy: the traditional (or agricultural) sector employs both children and adults, whereas the modern (or industrialised) sector employs only adults.
The model predicts that when growth results in closing the productivity gap between the two sectors, child labour increases, at least in the short run. Economic growth therefore has a non-monotone effect on child labour.
India provides a good case for studying these issues because the levels of prosperity and rates of growth vary significantly across the country. Our estimation results indicate that growth in industrial productivity has a relatively benign impact on both boys and girls – increasing schooling and decreasing (or, at worst, not significantly increasing) the probability of children working.
Growth in agricultural productivity, on the other hand, does seem to result in increased work, especially for girls, though it does also increase schooling, at least in the short run.
These findings are important both in influencing policies designed to decrease child work and also in designing policies for growth. While child work has decreased on average in India and child schooling has increased over the last decade or so, there are some relatively prosperous states – including Gujarat, Maharastra and Punjab – where both child work and child schooling have increased.
Understanding the factors that may lead to such changes is important especially for policy-makers who tend to see economic growth as the ultimate solution of the child labour problem.

‘Growth and Inverted U in Child Labour: A Dual Economy Approach’ by Nigar Hashimzade and Uma Kambhampati (School of Economics and Centre for Institutional Performance, University of Reading)

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