Why India's Ban Against Child Labor Increased Child Labor
Some take it as a matter of faith that increasing taxes will dull people’s desire to work. However, higher taxes can sometimes cause people to work more. When higher taxes reduce the after-tax wage, people are poorer for any given number of hours worked. When they become poorer, many people are more anxious to earn extra money. Economists call this the “income effect.” (Although in this context, I like to call it the “poverty effect.”)
Increasing tax rates is not the only way that the government can reduce wage rates. If the government punishes your employer for hiring you, your services will be less marketable, and your wage will fall. This phenomenon is important when countries enact bans on child labor. If a country is so poor that many parents send their children to work, then it is unlikely to have the wherewithal to perfectly enforce a ban on child labor. When the wages of children go down, the poor families that depended on child income will become even more desperate. This might cause parents to have their children work more.
A recent paper shows that this is exactly what happened when India enacted the Child Labor (Prohibition and Regulation) Act of 1986. The law banned children under 14 from working in many industries. After these rules took effect, the wages of children under 14 fell relative to those over 14.
The evidence showing that child labor increased is a little more subtle. The available data shows whether or not a child worked but not the number of hours the child worked. Although we can’t observe if already working children increased their hours, we can observe if additional children were drawn into the workforce. So which children would these be? It wouldn’t be a child with siblings over 14 because these siblings didn’t see falling wages (their employers weren’t getting punished for child labor violations). But a young child with an under 14 sibling might be drawn into the workforce. When one sibling earns lower wages, the family might be forced to have both siblings go to work. After the ban took place, the labor force participation of children with siblings under 14 did increase relative to children whose siblings were over 14.
More boys than girls worked both before and after the ban, but the ban had a relatively greater impact on girls. When the wages of boys fell, additional families started sending a girl to work.
It is hard to help poor families by reducing their income potential.
The authors have a more detailed but still non-technical summary of the paper here.