Child labor bans in Regional Trade Agreements increase child employment among 14--17 year olds

See CHILD LABOR STANDARDS IN REGIONAL TRADE AGREEMENTS: THEORY AND EVIDENCE by Ryan M. Abman, Clark C. Lundberg, John McLaren and Michele Ruta. From NBER WORKING PAPER SERIES. Excerpts:

"Abstract

We study the impact of child labor standards in Regional Trade Agreements (RTAs) on a variety of child labor market outcomes, including employment, education, and household inequality. We develop a stylized general equilibrium model of child labor in an economy open to international trade and consider the impact of RTAs with and without child labor bans. We empirically investigate the effects of these clauses in trade agreements in a broad international panel of 101 developing countries using harmonized survey microdata. Exploiting quasi-experimental methods to obtain plausibly causal estimates, we find that RTAs without child-labor bans lead to reductions in child employment and increases in school enrollment, particularly for older children aged 14--17. Child labor bans in RTAs perversely increase child employment among 14--17 year olds and decrease school enrollment for both young and older children. These effects appear to decrease inter-household income inequality through increased child earnings. Our findings are consistent with theoretical predictions from our model and the literature on child labor bans."

"In this paper, we study the impact of labor provisions in trade agreements aimed at eliminating the use of child labor. Such provisions have become more common over time as trade agreements have become more expansive in scope and increasingly cover non-trade areas. Using a large set of survey data from across 101 developing countries, we employ a variety of DiD and triple DiD regressions to identify the effect of RTAs without a child-labor provisions on child labor outcomes, as well as the differential effect of an agreement that does have such a provision. 

We find evidence that a trade agreement with no child-labor provision reduces the fraction of 14-17-year-olds in the labor force by a statistically and economically significant amount with corresponding increases in secondary school enrollment. We find similar effects for children under the age of 14 but these estimates are imprecise and not statistically significant. The pattern is consistent with an interpretation that a developing economy joining a trade agreement opens up possibilities for low-skill export employment and is consistent with the empirical findings of Edmonds and Pavcnik (2005) and Edmonds and Pavcnik (2006) that opening trade can reduce child labor in developing economies. 

On the other hand, we find that the inclusion of child labor prohibitions in RTAs perversely increases child labor—the opposite of their intended effect. We find statistically and economically significant increases in the employment of 14-17 year old children and statistically imprecise but economically significant increases in under-14 labor as well. We find corresponding drops in both primary and secondary school enrollment rates following entry into force of RTAs with child labor prohibitions. 

Our results are strikingly similar to those predicted in Basu (2005) and found empirically in Bharadwaj et al. (2020)—a case study of the 1986 ban in India. As in these works and in our theoretical model, if the ban is enforced through a fine imposed on employers, it will tend to depress child wages, inducing the household to increase total labor supply in order to make up the lost income—including the household child labor supply. We find a strong, significant increase in employment for 14-17-year-olds but none for under-14-year-olds, which is consistent with the mode prediction of an ambiguous effect on labor supply for the younger children who are the targets of the ban. But it is also possible that employment effects are not well measured for the younger children, since families with children working illegally may be reluctant to report that information to survey-takers. The strongly significant reduction in school enrollment rates for both age ranges, which is larger for elementary school enrollment, suggests that there may be an employment effect for the younger children that is missed in the data. 

The policy implications of this work are subtle. On the one hand, the findings suggest that labor provisions in RTAs are effective, as they impact on child labor outcomes and other relevant non-trade outcomes such as schooling and household inequality. On the other hand, the evidence suggests that in a developing-country context, opening opportunities for low-skill intensive exports is more effective at reducing child labor than an outright ban. Child labor bans in RTAs tend to be counterproductive because they push down the income of households who use child labor as an income source, requiring them to double down on the use of child labor."