Is the Child Labor Ban in India Causing Trouble?

The employment of children has been faced with worldwide opposition; however, children remain a part of the overall workforce. This is particularly true in developing countries with low income per capita and insufficient regulations, where the reduced costs of child labor have further fueled endemic underage employment. While this issue has been addressed by various legal actions, the impact of such legislation in developing countries is yet to be discussed. In Perverse Consequences of Well Intentioned Regulation: Evidence from India’s Child Labor Ban, Bharadwaj et al. examine the country’s child labor supply data and household welfare indicators after India’s Child Labor (Prohibition and Regulation) Act of 1986. Results from this first empirical investigation of the national flagship regulation show that the ban leads to reduced child wages relative to adult wages, increased levels of child labor supply, and small decreases in household welfare, unambiguously making the nation worse off.

In 1986, the age of 14 was adopted as the minimum age to be eligible to work in certain occupations according to India’s Child Labor Act, including manufacturing and construction. For those industries exempt from the ban, such as agriculture and family run businesses, the law also placed limits on the hours when children could work. Exploiting the employment surveys collected by the Indian government in 1983, 1987, and 1993, the authors examine labor supply responses of nearly 515,000 children between the ages of six and 17 before and after the ban.

Consistent drops in child wages relative to adult wages are observed, especially in the manufacturing industry. Using a difference-in-differences model, the authors find that the net result of this ban is a child labor increase in the poorest families. The results also indicate that a child below the age of 14 is more likely to join the workforce relative to someone just above 14, after the ban. More specifically, children between the ages of 10 and 13 increase their average labor force participation by approximately 5.6 percent after the ban. A child in this age group with a sibling below 14 years old also significantly increases his or her labor force participation by 0.8 percent compared to a child of the same age with a sibling older than 14. Bharadwaj et al. calculate various household welfare indicators as well. Evidence from changes in per capita expenditures, per capita food expenditure, staple share of calories, and household asset index all suggest a negative welfare effect of the ban.

Why does this well-meant regulation against underage employment result in undesired consequences for India? The initial intention of the policy is obvious—to deter the use of child labor by increasing the cost for employers hiring children. However, another implicit mechanism might have driven the results in a conflicting direction. If child labor is only supplied by the most underprivileged families needing to reach subsistence levels, the reduced child wages due to the ban may actually induce them to send more children to work in order to make ends meet (Basu 1998, 2005). The authors further extend the model into a two-sector case with complete/partial labor mobility across sectors and show that child labor may rise and child wages may fall in response to an imperfectly enforced ban on child labor.

Not only does child labor result in unfortunate conditions for children in the present, it also leads to diminished human capital investments for a country, which might cause critical long-run consequences affecting national asset accumulation and perhaps also fertility. The authors’ analysis is broadly applicable to similar regulations in other developing countries, where there is insufficient empirical work at the intersection of law and economics. Rather than suggesting all child labor bans are impractical, the objective of the paper is to highlight the importance of taking into account multiple market failures including weak enforcement and margin of subsistence behaviors, which might create the potential for perverse effects.

Feature Photo: cc/(Frederik Rowing)