The economic impact of child labour

Short term, child labour increases households’ income, long term, it perpetuates household poverty through lower human capital

This paper contains a theoretical discussion and a literature survey on the economic impact of child labour.

Three main categories of economic impact of child labour are analysed:

the effects of child labour at the micro family level, particularly on family poverty both in the short and in the long run
the effects of child labour on long-run growth and social development through a number of different transmission mechanisms
the international economic effects of child labour particularly on foreign direct investment
the effects of child labour on adult labour market

Micro family level findings:

in the short-run, child labour increases households’ income and probability of survival
in the long run, child labour perpetuates household poverty through lower human capital
child labour and schooling are not necessarily mutually exclusive
schooling may not lead to the accumulation of human capital
child labour in most wage-employment non-agriculture activities does not lead to skills development
in the long run child labour perpetuates poverty through enhanced fertility

Macroeconomic level findings:

child labour can slow down long run growth and social development through reduced human capital accumulation
child labour occurs mostly in the unorganised sector and in small units with simple technology and little capital equipment. Whether reducing child labour would speed up capital investment and technological change depends on the impact on adult wages. Child labour can be expected to have an ambiguous impact on income inequality in the short run, and to increase income inequality in the long run
child labour might affect more girls than boys, fuelling gender inequality in education
child labour does not attract foreign direct investment
child and adult workers can be substitutes for one another
whether children actually do substitute adult workers creating adult unemployment and/or reducing adult wage rates remains an open question
to the extent that children compete with unskilled adults for the same jobs, child workers affect adult employment or adult wages depending on the structure of the labour market

[Adapted from the author]

Eldis