Effect of Ban on Exports Containing Child Labour in a Dynamic Model in Presence of Imperfect Monitoring
| Author | Ambar Nath Ghosh,Soumya Sahin |
| Published date | 01 February 2016 |
| Date | 01 February 2016 |
| DOI | http://doi.org/10.1177/0015732515615259 |
| Subject Matter | Articles |
Effect of Ban on Exports
Containing Child Labour
in a Dynamic Model in
Presence of Imperfect
Monitoring
Soumya Sahin1
Ambar Nath Ghosh1
Abstract
We build up a simple overlapping generations’ model where parents derive utility
from their children’s education and use this framework to understand and ana-
lyze the implications of a ban on exports with child labour content. Since perfect
monitoring seems unrealistic, we develop a model with imperfect monitoring.
The export industry is competitive and therefore zero-profit condition holds.
The country under consideration is assumed to be a small open economy and
therefore faces a fairly elastic demand. Then, a ban on child labour imposed by
the importing countries will increase the cost of employing child labour and will
discourage the producers in that sector to use child labour. The final effect on the
incidence of child labour will however depend on whether the aggregate supply of
unskilled labour by child workers in the pre-ban equilibrium situation is greater or
less than the demand for unskilled labour in the import-competing sector.
JEL: D10, F11, I22, J13, J20, J24
Keywords
Child labour, overlapping generations, imperfect monitoring
Introduction
The problem of child labour is a major challenge to the progress of developing
countries. Children work at the cost of their right to education as a result of
which, they are forced to work as unskilled labourers even when they are adult.
Foreign Trade Review
51(1) 26–45
©2016 Indian Institute of
Foreign Trade
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/0015732515615259
http://ftr.sagepub.com
Corresponding author:
Soumya Sahin, The West Bengal National University of Juridical Sciences, Dr. Ambedkar Bhavan,
12 LB Block, Sector-III, Salt Lake City, Kolkata, India.
E-mail: soumya.sahin@gmail.com
1 Department of Economics, Jadavpur University, Kolkata.
Article
Sahin and Ghosh 27
The situation is particularly grave in Sub-Saharan Africa and some Asian coun-
tries. In its global report on child labour, the International Labour Organization
(ILO) recorded that in 2008, there were almost 215 million children around the
world who did regular work.
There exists a vast literature on the economics of child labour. It is an imposing
challenge for economists in developing countries to design policies that can tackle
effectively the problem of child labour. While there is no doubt about the fact that
children working as a mass phenomenon in many developing economies is a
social malaise, the major part of the literature has identified stark poverty as the
main reason for parents being compelled to send their children to work for reasons
of survival. The incidence of child labour is dependent upon a number of factors.
Understanding the interplay of these factors is a highly complex exercise.
However, one can always look into the manner in which this incidence of child
labour is defined and controlled through state policies—by simultaneously creat-
ing prohibitions against a number of actors and incentivizing child education.
Studies have shown that legislations and governmental policies prohibiting child
labour prove insufficient in the absence of proper monitoring mechanism. The
Child Labour (Prohibition and Regulation) Act, 1986 does not provide a fool-
proof mechanism to monitor the occurrences of child labour; neither does it dis-
incentivize the incidence of child labour. One has to add another perspective in
this debate—the parental choice. What role does a parent play in sending the child
to work? Why does a parent prioritize ‘work’ over ‘education’? What can be
done to incentivize education and discourage child employment? Yet, another
aspect relates to the linkages of child labour with child education. What is the
content of the ‘incentive’ element in the legislative and governmental policies,
whereby child labour is arrested by incentivizing education? For the purpose, one
has to keep into account that a child has either of the two options at his disposal,
namely, to work or to go to school; he has to choose between the two. However,
there exists a third possibility of having an interior solution at the micro level
whereby the child works part-time and also goes to school. We build up a simple
overlapping generations’ model where parents derive utility from their children’s
education and use this framework to understand and analyze the implications of a
ban on exports with child labour content. Since perfect monitoring seems unreal-
istic, we develop a model with imperfect monitoring.
An important contribution in this context is by Basu and Van (1998) which
explores the possibility of multiple equilibria in the labour market—one in which
wages are low and children work and the other in which wages are high and chil-
dren do not work. As a result of a total ban on child labour, the ‘bad’ equilibrium
may cease to exist and the economy settles at the ‘good equilibrium’. This is pre-
cisely a consequence of multiple equilibria.
There is a world-wide consensus regarding the fact that child labour needs to
be banished. However, the governments in many developing countries face politi-
cal constraints when they try to bring strong child labour laws. The problem comes
mainly from two fronts: First, if the export sector derives its comparative advan-
tage in the world market from abundant supply of unskilled labour, a good pro-
portion of it being child labour, then it will lobby hard against ban on child
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