Child Labor Through the Strange Filter of Orthodox Economics

There is much to endorse in the innards of the argument made by Matthias Doepke and Fabrizio Zilibotti in their recent post on Vox EU. Yes, consumer boycotts and trade sanctions are a poor way to address the blight of child labor, and double yes, income transfer programs that pull poor families out of poverty and keep their kids in school are a proven remedy. But why is it that, whatever the question, the economically correct answer is always “Don’t mess with trade”?

Actually, the fundamental problem with consumer activism around child labor is that very few of the world’s child laborers work in the export sector, and even fewer are part of the value chain for branded products. The sad truth is that first world consumers who obsess about what to buy are mainly assuaging their own conscience and not doing a whole lot for the downtrodden. Whether such activism has more costs than benefits is dubious, however, despite the authors’ assumption-laden modeling exercise.

But let’s take as our starting point the observation that child labor is much more widespread and more harmful in poor countries than rich ones. Surely anyone concerned about the problem would be thinking about ways to reduce the burden of poverty. Unfortunately, global poverty is exploding in the wake of the current economic crisis, and this will make the problem of child labor—and child hunger, and child disease, and child death—far more severe.

This crisis has many causes, but none has been more fundamental than the unsustainable imbalances engendered by the very trading system we are instructed not to mess with. It turned out that flooding western markets with goods produced by extremely cheap labor depended on western consumers piling up a mountain of debt. These imbalances have now collapsed, and they will not be rebuilt. If we are to put globalization on a sustainable footing, we will most definitely have to mess with trade, so that it can grow on the basis of a more equitable pattern of demand.

One other item jumped out at me. The core argument of Doepke/Zilibotti turns out to be this:

In our analysis, we find that international interventions weaken domestic support for child-labour restrictions because they reduce competition between children and unskilled adult workers in the labour market. Unskilled workers then have less incentive to push for child-labour regulation.

When effective, trade sanctions or consumer boycotts move child workers from formal employment in the export sector to informal production, often in family-based agriculture. In the export sector, particularly in factories, children and adults perform similar tasks and therefore compete directly for jobs. In the informal sector, children and adults usually have different work responsibilities.

As it happens, I have actually conducted research into the potential competitive effects of child labor on adult markets. As far as I know, no one else has investigated this empirically. It turns out that children do not always offer higher profits to employers, but they often do, and this situation is not confined to production for export. Let’s not let a little evidence get in the way of their nice, neat theorems, however.