Public policy that combines compulsory education and redistributive taxation will reduce
child labour and fertility rates a nd spur economic growth in developing countries. That is
the central conclusion of new research by Moshe Hazan and Binyamin Berdugo,
published in the latest issue of the Economic Journal.
The study argues that child labour can explain high fertility rates both in contemporary
developing countries and historically in industrialising countries. In particular, family
income from child labour reduces the net cost of child rearing, enabling high fertility
rates. And historically, in industrialising countries, technological change that gradually
increased the wage differential between parental and child labour, made income from
child labour less essential, leading parents to invest more in their children’s education
and reduce their fertility.
According to the ILO Bureau of Statistics, 250 million children aged 5-14 were
economically active in 1995, a quarter of the children in this age group worldwide. This
child labour phenomenon is most widespread in the poorest continent, Africa.
But it was not always the sole province of less developed countries: child labour was
once common in Europe and the United States. In 1851, in England and Wales, 37% of
all boys aged 10-14 and 20% of girls in that age group worked. Fertility rates, which
today are barely at the replacement rate (which keeps the population stable) in the
developed countries, were as high as those in Africa today: about six births per woman.
These stylised facts suggest that child labour and fertility are positively correlated over
a long periods of time.
The researchers’ main argument is that income from child labour helped reduce the
overall cost of child rearing, enabling high fertility rates. Moreover, they suggest that the
decline in child labour that has accompanied the process of development is not
necessarily a reflection of the enlightenment of society, but rather a consequence of
technological change that has made child labour non-beneficial.
They demonstrate how technological progress that accompanies the process of
development gradually increases the wage differential between parental and child
labour, decreasing the benefit from child labour and ultimately permitting a take-off from
stagnation to growth. Parents raise their investment in the education of their children
while reducing fertility rates and the economy reaches a state of sustained economic
growth where child labour is abolished and the fertility rate is low.
A recent study by Doepke supports this line of argument by comparing the growth
experience of Korea and Brazil in the 1960s and the 1970s. He shows that policies that
affect the ‘opportunity cost’ of child labour, namely education subsidies and restrictions
on child labour had a large impact on the different patterns of fertility decline in these
two countries, despite the close similarity in income growth.
Despite these predictions for the developing countries, in light of the magnitude of the
phenomenon of child labour, it is vital to ask whether public policies can expedite the
development process. The chief determinant of child labour is that children cannot
borrow to finance their education and to compensate their parents for the forgone
earnings of child labour (and the inability of parents to borrow against their children’s
future income).
Hazan and Berdugo therefore suggest a policy that combines compulsory education
and redistributive taxation from these now educated adults to the elders. The
compulsory education solves the under-investment in education resulting from
borrowing constraints, while the redistributi ve taxation serves as a compensation for the
forgone earnings of child labour. Such a policy enhances households’ welfare and
expedites economic growth.
ENDS
Notes for Editors: ‘Child Labour, Fertility and Economic Growth’ by Moshe Hazan and
Binyamin Berdugo is published in the October 2002 issue of the Economic Journal.
Hazan is currently visiting the Department of Economics at the Massachusetts Institute
of Technology (MIT), 50 Memorial Drive, E52-251d, Cambridge MA 02142-1347;
Berdugo is at the Hebrew University of Jerusalem.
For Further Information: contact Moshe Hazan on +1-617-253-8547 (email:
mhazan@mit.edu; papers available at: http://papers.ssrn.com/author=290636); or RES
Media Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email:
romesh@compuserve.com).