Small Hands Should Play, Not Work: A Theoretical Analysis of Interventions in Child Labor by Charlotte Ringdal Master thesis Thesis to complete the degree in Master in Economics University of Bergen, Department of Economics December 2011 Acknowledgments First I want to thank Chr. Michelsen Institute (CMI) for accepting me as an associated Master Student and giving me the opportunity to be a part of an exciting research environment. Thank you also to my fellow CMI students, especially the students in Economics: Kristin and Ingrid. I am grateful for the economic support provided by the faculty of Social Sciences, University of Bergen for my fieldwork in Nepal. I also want to thank my helpful supervisors, Gaute Torsvik (Department of Economics, University of Bergen) and Magnus Hatlebakk (CMI), for useful comments and encouragement. Especially thanks to Magnus for helping me during my fieldwork in Nepal. In Nepal I want to thank my translator Pathak and Shiva Sharma for helpful insight into the child labor situation in Nepal and discussion about Nepal GoodWeave Foundation. I also want to thank everyone I met in Nepal that helped me and gave me inspiration for the thesis. Thanks to Tania and Dough for taking their time to read through my thesis and comment on language and content. I also want to thank my brother Haakon, mother Ingebjørg and aunt Unni for a fruitful discussion on Facebook about the title I should use for my thesis. Last, but not least, I want to thank my fiancée Christer for supporting and encouraging me this year. I love you! Charlotte Ringdal, Bergen, November 26th 2011. ii Abstract Small Hands Should Play, Not Work: A Theoretical Analysis of Interventions in Child Labor by Charlotte Ringdal, Master in Economics University of Bergen, 2011 Supervisors: Gaute Torsvik (UiB) and Magnus Hatlebakk (CMI) Twelve hours a day, 7 days a week, there are 150 million children below the age of 15 working to make the clothes we wear, the carpets on our floors and the phones in our pockets. Most of these children do not have a choice: the alternative is worse. In this thesis, I use economic models to study how interventions (such as increased educational opportunities, firmer legislation, international conventions and product labeling) affect the incidence of child labor. I find that most interventions are likely to reduce the incidence of child labor either at a national level, a local level or in a specific industry. Some interventions (such as bans) are more likely to reduce the welfare of children than others (such as increased educational opportunities). It appears that if households do not chose by themselves to withdraw children from the labor market and are not given any form of compensation for lost income, the welfare of households (and thus the children as well) is reduced. Having this in mind, I take a closer look at one intervention in the carpet sector in Nepal: the Nepal GoodWeave Foundation. This organization labels carpets that are exported to countries such as Germany and the U.S. I find that GoodWeave is successful in reducing child labor in the factories that carry their label. At the same time, the organization helps to maintain the welfare of the children through education programs, in addition to preventing child labor by offering the children of carpet workers access to kindergartens and schools. Unfortunately, the scope of the program is too small to eliminate child labor throughout the carpet sector in Nepal. iii Sammendrag Små hender skal leke, ikke arbeide: En teoretisk analyse av tiltak mot barnearbeid av Charlotte Ringdal, Master i Samfunnsøkonomi Universitetet i Bergen, 2011 Veiledere: Gaute Torsvik (UiB) og Magnus Hatlebakk (CMI) Tolv timer i døgnet, året rundt, arbeider 150 millioner barn under 15 år med å produsere klærne vi går i, teppene vi går på og mobilene vi har i lommen. De fleste av barna har ikke noen valgmuligheter, alternativene er så mye verre. I denne masteroppgaven ser jeg på hvordan inngrep rettet mot barnearbeid kan påvirket omfanget av fenomenet. Ved hjelp av økonomiske modeller analyserer jeg hvordan tiltak som utdannelsestilbud, lovverk, internasjonale konvensjoner og produktmerking påvirker dagens situasjon. Jeg finner at alle tiltak sannsynligvis vil redusere barnearbeid nasjonalt, lokalt eller i en spesifikk industri. Samtidig har enkelte tiltak (som forbud mot barnearbeid) en større sannsynlighet for å redusere velferden til barna enn andre (som utdannelsestilbud). Det kan se ut som om dersom husholdningene ikke selv velger å ta barna ut fra arbeidsmarkedet eller er kompensert for den tapte inntekten, vil velferden til husholdningen og dermed også barna bli redusert. Med dette som bakteppe har jeg sett nærmere på ett tiltak i teppesektoren i Nepal – Nepal GoodWeave Foundation. Denne organisasjonen arbeider med produktmerking av tepper som eksporteres til blant annet Tyskland og USA. Jeg finner at organisasjonen lykkes i målet om å redusere barnearbeid hos fabrikkene som bærer deres etikett. Samtidig, bidrar de til å beholde barnas velferd gjennom utdannelsesprogram, samt forhindre barnearbeid ved å tilby barn av teppearbeidere tilgang til barnehager og skoler. Likevel er dessverre omfanget av programmet for lite til å eliminere barnearbeid i hele Nepals teppesektor. iv Contents Acknowledgments .................................................................................................................. ii Abstract ................................................................................................................................. iii Sammendrag .......................................................................................................................... iv List of tables ......................................................................................................................... vii List of figures ....................................................................................................................... vii List of tables in the Appendix ............................................................................................. viii List of figures in the Appendix ........................................................................................... viii Chapter 1: Introduction ........................................................................................................... 1 Chapter 2: An overview of child labor ................................................................................... 4 2.1. What is child labor and why is it so difficult to measure? .............................................. 4 2.2. History of child labor ...................................................................................................... 9 2.2.1 Europe ..................................................................................................................... 10 2.2.2. Colonies .................................................................................................................. 11 2.3. Child labor in the world today ....................................................................................... 12 Chapter 3: Interventions: How do they work in theory? ................................................... 16 3.1. Why do children work? ................................................................................................. 16 3.2. The effects of interventions at the household level ....................................................... 17 3.3. Aggregate effects ........................................................................................................... 21 3.3.1. Compulsory education and education programs .................................................... 22 3.3.2. Ban on child labor .................................................................................................. 23 3.4. Effects in a model with multiple equilibriums .............................................................. 25 3.5. Education as an investment ........................................................................................... 30 3.6. Women’s empowerment ............................................................................................... 32 3.7. International interventions ............................................................................................. 34 3.7.1. International labor standards .................................................................................. 34 3.7.2. Consumer boycotts, trade sanctions and labels ...................................................... 37 v 3.8. Discussion ..................................................................................................................... 42 Chapter 4: Empirical research .............................................................................................. 45 4.1. Income and child labor .................................................................................................. 45 4.2. Education and child labor .............................................................................................. 47 4.3. Credit restrictions and child labor ................................................................................. 48 4.4. Parental attitude and child labor .................................................................................... 49 4.5. International interventions and child labor .................................................................... 50 Chapter 5: Child Labor in Nepal .........................................................................................