The Effect of Emigration on Child Labor

Transcription

1 DISCUSSION PPER SERIES IZ DP No The Effect of Emigration on Child Labor Gil S. Epstein Nava Kahana September 2007 Forschungsinstitut zur Zukunft der rbeit Institute for the Study of Labor

2 The Effect of Emigration on Child Labor Gil S. Epstein Bar-Ilan University, CReM and IZ Nava Kahana Bar-Ilan University and IZ Discussion Paper No September 2007 IZ P.O. Box Bonn Germany Phone: Fax: ny opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZ may include vies on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZ) in Bonn is a local and virtual international research center and a place of communication beteen science, politics and business. IZ is an independent nonprofit company supported by Deutsche Post World Net. The center is associated ith the University of Bonn and offers a stimulating research environment through its research netorks, research support, and visitors and doctoral programs. IZ engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZ Discussion Papers often represent preliminary ork and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. revised version may be available directly from the author.

3 IZ Discussion Paper No September 2007 BSTRCT The Effect of Emigration on Child Labor We present a general model of child labor that incorporates the various components presented in the literature as explanations for its existence. Our proposal is to mitigate the phenomenon by encouraging temporary emigration. It emerges that the remittances sent by the emigrating parents might enable not only their children, but also others, to stop orking. We sho ho this equilibrium can be sustained even upon the return of the emigrant parents to their home country. JEL Classification: D62, F22, I30, J13, J20, J24, O15 Keyords: child labor, temporary emigration Corresponding author: Gil S. Epstein Department of Economics Bar-Ilan University Ramat-Gan Israel epsteig@mail.biu.ac.il

4 I. Introduction ccording to the International Labor Organization (ILO), about 250 million children beteen the ages of 5 and 14 are orking in developing countries. Out of that 250 million, at least 120 million ork full time. Sixty-one percent are in sia, 32% in frica, and 7% in Latin merica. Tragically, these children have no hope of benefiting from the booming global economy. s people become informed about the idespread phenomenon of child labor in the developing orld, the natural reaction is to take measures against it. The three main explanations in the literature for the existence of child labor are: (i) parents concern for the household s survival coupled ith substitutability in production beteen child and adult labor (Kaushik Basu and Pham Hoang Van, 1998); (ii) poverty combined ith the absence of credit markets ( Priya Ranjan, 1999, 2001); and (iii) poverty together ith lo-ability children or lo returns to education (Marigee P. Bacolod and Priya Ranjan, 2006). Depending on the theoretical underlying economic forces that give rise to the phenomenon of child labor, diverse policy strategies have been proposed, including the folloing: legislative ban on child labor; Banning the import of products made using child labor; Imposing international labor standards to be monitored by international organizations; Providing income support to compensate for the forgone earnings of children; Improving credit markets; Imposing minimum age restrictions. 2

5 Most of these proposed policies have eaknesses: hile there is evidence that in developing countries, improvement in the economic conditions of adult orkers results in the decline of child labor, since parents can afford to take their children out of the labor force, minimum age legislation to bolster adult ages may have a reverse effect if the age increase causes some adults to be unemployed and thus send their children to ork, hich in turn displaces more adult labor and sends more children to ork (see Kaushik Basu, 2000). Income supports to the poor or improving credit markets are liable to be used to buy land or open a business, hich in turn ould increase child labor by creating a production environment conducive to employing children. 1 legislative ban on child labor is liable to deflect the economy to a superior equilibrium in hich children do not ork; hoever, such las may deprive children of ork that is unfortunately essential to their survival. International measures to stop child labor in the production of traded goods ill simply drive children into the non-traded sectors, hich may ell be orse for the children. In the literature, no single policy is proposed that ill end child labor. We suggest coping ith the problem by encouraging temporary emigration of one of the parents. It turns out that the remittances sent by emigrating parents might enable not only their children, but also others, to stop orking. The basic idea is that temporary emigration results in a leftard shift in the labor supply, here the extent of the shift is a function of the quantity of emigrants. If the labor supply decreases sufficiently, ages increase to a level here parents can afford to take their children out of the labor force. In the long run, upon return of the emigrants, in a multiple-equilibria situation, ages decrease, yet are still sufficiently high to prevent child labor. In the 1 Hoever, schooling has responded to rearding children ho goes to school instead of orking in most of the programs (for a detailed discussion see Kaushik Basu and Zafiris Tzannatos, 2003). 3

6 unique bad equilibrium situation, more conditions are required in order to sustain an equilibrium ithout child labor. In this paper, e discuss those conditions. vast literature deals ith the impact of migration and temporary emigration on the host country. Herein e focus on the effect of migration, specifically temporary emigration, on the source country. One of the justifications for temporary emigration to Europe and the United States is the benefits gained by the origin country from the increased human capital of the returning emigrants (see for example, Tito Boeri, Gordon Hanson, and Barry McCormick, 2002). In this paper, e raise an additional argument for temporary emigration: the decline of child labor in the source countries. We start by presenting a simple dynamic general equilibrium model that incorporates all factors mentioned in the literature that may cause child labor. We then turn to discussing the possibility of temporary emigration and its effect on child labor in both the short and long run. II. Child Labor: The Dynamic Model ssume N identical households in the economy. In the first period, each household consists of to unskilled adults (the to parents) and to children. Folloing Kaushik Basu (1999), e consider an overlapping generations model in hich each person lives for to periods: in the first as a child, and in the second as an adult. t the start of the second period, each couple gives birth to to children. n adult alays orks no matter hat the ages are. child can either ork or go to school (that is, acquire human capital). Denoting a full orkday by unity and the unskilled adult age by. child ho orks for a fraction e [ 0, 1] of the orkday, goes to school for the rest of the 4

7 day, e, and earns as an adult a age g ( 1 e). g( 1 e) is an increasing, concave 1 function of the investment level of education, 1 e, and g ( 0) = 1. Like Kaushik Basu and Pham Hoang Van (1998) and Priya Ranjan (1999), e assume that an unskilled adult and a child are perfect substitutes in production subject to an unskilled adult equivalence correction denoted by γ, 0 < γ < 1, i.e., each unskilled adult, orking all day, produces one unit of labor, hereas each child, orking all day, produces γ units of labor. In the first period, the demand for labor of firm i is given by: C (1) f ( i + γ Ci ) = min(, ), γ here is a child age, and C are respectively the number of adult and child C i i laborers employed by firm i, and f ( i i + γ C ) is firmi s output of the only consumption good in the economy. It is assumed that the marginal product is positive and decreasing, i.e., f > 0 and f < 0. The unit of the good is chosen such that its price happens to be 1. C Given that there are n identical firms and that =, the aggregate demand γ C for adults and children labor, D and D, is derived by multiplying each firm s demand by n, thus: (2) C D + γ D C f ( ) = =. n γ child has negligible bargaining poer in the household, and thus the parents, ho all have the same preferences, decide hether to send their children to ork. Parents are altruistically concerned about their children s elfare. Folloing 5

8 Kaushik Basu and Pham Hoang Van (1998), the household preference is given by the Stone Geary utility function: ( c1 s) y2 if c1 s (3) U ( c1, y2 ) =, c1 s, if c1 < s here c 1 is the consumption of the household in Period 1. Consumption is equally divided beteen the parents and the children. adults in Period 2, and s > 0 is a parameter. y 2 is the earnings of the children as Living in a developing economy, the household faces credit constraints (i.e., ants to borro in order to smooth consumption, yet cannot); so the household maximizes utility U ith respect to [ 0, 1] constraints: 2 (4) c = 2 2γ e and 1 + (5) y = 2g(1 ). (4) and (5) are equivalent to: 2 e 2 (1 + γ ) c1 (6) y2 = 2 g( ). 3 2γ e subject to the folloing budget Given that g > γ, the first-order condition for an interior solution is: 4 g 2 Folloing Kaushik Basu and Pham Hoang Van (1998), orkers have no share in the profits of the firm. Kenneth. Sinnerton and Carol nn Rogers (1999) assumed the other polar extreme case herein the orkers on all shares. 3 For simplicity s sake, e assume that the only cost of schooling is the forgone earnings of children. The model can be easily extended to include the direct cost of schooling. 2 dy 4 2 g d y = < 0 and 2 g ( e) = < 0, thus, the second-order condition for maximization is dc 1 γ 2 2 dc 2γ 1 satisfied. 6

9 (7) 0.5sg = (1 + γ e) g γ g. Thus, (8) d de = 2 γ sgg 2( g ) γ s [ + γ e) g γ g] 2 (1 2 < 0, and (9) 2 d de 3γ sg g γ sgg 2γ g g (1 + γ e) =. [ + γ e) g γ g] 2 [(1 + γ e g γ g] (1 ) From (8) and (9), it follos that for the case of an interior solution, child labor fraction e( ) is a decreasing function of the parent s age, and if g 0, it is convex in 2 2 d d (i.e., < 0); otherise the sign of 2 2 de de is ambiguous. In the case here the parent s age is sufficiently high or sufficiently lo, e obtain corner solutions, i.e., (10) 0.5sg (1) if = 0 g (1) γ g(1) e( ) =. 0.5g (0) s 1 if = + (1 γ ) g (0) γ The aggregate labor supply functions of the adults and the children are respectively: (11) S = 2N and C (12) S ) = 2Ne( ). ( 7

10 Keeping in mind that the adult alays orks full time, according to (8), (9), and (10), for an adult age of and above, the aggregate labor supply curve is perfectly inelastic, and only the 2 N adults ant to ork. For an adult age of and belo, the aggregate labor supply curve is perfectly inelastic at a level of 2 N ( 1+ γ ). Otherise, the aggregate labor supply is decreasing in the adult s age (see Figure 1), i.e., the labor supply curve is backard-bending. 5 Labor-market equilibrium is a age = C such that: γ (13) D ( ) = S = 2N and C C (14) D ( ) S ( ) = 2Ne ( ). = To sum up, There may be three equilibriums. It is clear that the first and third (points G and B in Figure 1) ould be stable, hile the second ould be unstable (point F in Figure 1). If the adult age is greater than, then only adults ork, and if their ages are loer than be partial child labor., all children ork. If adult ages are beteen [Insert Figure 1 here] and, there ill III. Child Labor and Temporary Emigration In the folloing section, e discuss the positive externalities that may occur due to temporary emigration and its implications. It is shon that sizeable temporary s < = 2(1+ γ ) 5 Note that if, e get that c 1 > s but if s 2(1 + γ ), e get that c s. 1 8

11 emigration may remove from the orkforce not only children of temporary emigrating orkers, but all child laborers in the country. 6 Let us demonstrate the minimum quantity of temporary emigrants (only one of the parents) required to end child labor. Based on the model presented above (see also Kaushik Basu,1999), assume first the case herein the labor market has three equilibria, here one is unstable (point F in Figure 1) and the to stable ones are depicted by G and B in Figure 1. If the economy is at point B, all children ill be orking ( e = 1), hereas the economy can be in equilibrium at pointg, here children do not ork ( e = 0 ). We focus on the case herein the economy is caught in equilibrium at point B ith full child labor. Temporary emigration (of one of the parents) results in a leftard shift in the labor supply. t the departure point, the excess labor supply, ( ) the unskilled adult age, B F [ ], (see Figure 1), and is given by: (15) ) = S( ) D ( ), (, is a function of here S( ) and D ( ) are the aggregate labor supply and demand respectively. ssuming that the remittances sent by emigrating parents enable their children to stop orking 7, each additional emigrant reduces the excess labor supply by 6 Temporary contracted orkers enter the host country for a given period of time, and at the end of that period, return home. Intent of temporary stay is reflected in families left behind, and in the local employer often taking responsibility for housing, health care, and other services during the temporary stay. In Germany, the employment of a temporary orker can be arranged only under bilateral agreements made by Germany ith the orker s home country. Germany limits the duration of orkers stays: Workers employed under a contract for services are employed for a maximum of to years (three in some exceptional cases). The UK also permits the employment of temporary orkers and sets similar restrictions to the German ones. The majority of the temporary orkers in the EC countries in 1999 ere seasonal orkers rather than skilled orkers. In Israel in the 1990s, for example, contracted temporary migration guest orker programs ere a result of sector-specific labor shortages, i.e., nurses and infirm care providers from the Philippines; construction orkers from Romania; agricultural orkers from Thailand, and specialized services from Russia and the Ukraine. In Israel, an employer ho receives approval to import temporary orkers may do so for a period of five years, but must rene the permit after to years. fter five years, the orker must leave Israel for at least one year before s/he can return. Temporary orkers in Israel are mostly lo skilled. They receive health care financed by the employer. 9

12 + 2γ e( ). Thus, the quantity of emigrating parents, K( ), (no more than one 1 from each household) needed to close the excess labor supply is: (16) K( ( ) ) =. 1+ 2γ e( ) Let * be the solution to the folloing problem: (17) Max K( ) s. t. B < F * * * Denote by [ K ( )] the truncated integer value of K ( ). Therefore, [ K ( )] + 1 smaller than N, is the number of temporary emigrants needed to remove the economy from a child labor equilibrium to a unique stable equilibrium ithout child labor (see Figure 1 point G ). Notice that the emigration is temporary, and after a certain period of time, the parents return to their families. Upon return, the labor supply curve ill shift back to its original location, yet the economy ill shift to a ne, stable equilibrium ithout child labor (see point G Figure 1). [Insert Figure 2 here], if The analysis presented above holds also hen in the initial situation, there is a unique bad equilibrium ith child labor (see point B Figure 2) ith the one exception of the parents returning home and joining the labor market, the economy moving back to the initial child labor equilibrium (point B in Figure 2). In order to prevent this, hat is needed is that either (a) the parents do not return until the children gro up, (b) if 7 One claim is that the objective of the emigrants is to earn sufficient funds to enable their children to acquire education. 10

13 they return before their children gro up, then they do not join the labor force. This ould happen if they earned sufficient funds abroad so that they do not need to ork once home; or (c) a ne ave of temporary emigrants substitutes for those ho have returned. In any case, if the equilibrium ithout child labor can be sustained until the children gro up to be more productive orker-parents ( g( 1) > 1), hich is equivalent to a reduction in the productivity of the ne generation of children in terms of their parents γ, then in the second generation, child labor may be partially or even fully d eliminated. This ill occur since from (10) it follos that > 0, and if g ( 0) < 1, dγ d then also > 0. Thus, if the return to schooling ( g(1) ) is sufficiently high such dγ that the reduction in γ results in a sufficient decrease in to at least * (see Figure 2), in the second generation, a stable equilibrium ithout child labor ill also emerge, i.e., the ne starting point ill be multiple equilibria. Moreover, if g ( 0) < 1 and the decrease inγ results in a significant decrease in B, i.e., to or belo (see Figure 2), then the incidence of child labor ill decline or may even disappear. IV. Emigration Decision and Public Policy On the one hand, temporary lo-skilled emigrants increase the household utility by increasing substantially the income of their families left behind through the remittances they send, thereby preventing their children (fully or partially) from orking. On the other hand, since not all family members emigrate together, there is a loss of utility from not being together. Thus, there is a discount factor to the household utility function due to the family s temporary separation, reflecting the tightness of the family s relations. Taking these to factors into account, the 11

14 household decides hether to send one of the spouses to ork in a developed country for a given period. Since households may differ in their preferences, it is clear that not all of them ill send one of the spouses to ork temporarily abroad. Moreover, the household disregards the effect of their decision on other children s fates, i.e., they do not take into consideration the externalities that their emigration has on the economy. Thus, the quantity of temporary, lo-skilled emigrants may be insufficient to end child labor in the source country. Public intervention may ell be needed to cause and sustain temporary emigration in order to enable the reduction of child labor. In such a case, in order to curb child labor, the source country should encourage temporary emigration, for example, by helping potential emigrants to obtain relevant temporary ork permits and pursuing bilateral engagements beteen countries. V. Conclusion In this paper e presented a general model of child labor. This model incorporates the various factors presented in the literature for the explanation of the phenomenon of child labor. Depending on the theoretical underlying economic forces that give rise to the phenomenon of child labor, diverse policy strategies have been proposed, yet no single policy proposed ould end child labor. We propose temporary emigration as an additional ay to curb child tabor. It turns out that the remittances sent by emigrating parents might enable not only their children, but also all others in the origin country, to stop orking. The basic idea is that temporary emigration results in a leftard shift in the labor supply, here the extent of the shift is a function of the quantity of emigrants. If the labor supply decreases sufficiently, ages increase up to a level such that parents can afford to take their children out of the labor force. The household does not take into consideration the externalities that their emigration 12

15 has on the economy. Thus, the quantity of temporary, lo-skilled emigrants may be insufficient to end child labor. Therefore, public intervention may ell be needed to cause and sustain the required quantity of temporary emigrants. This can be done, for example, by governments obtaining adequate temporary ork permits for emigrants, and pursuing bilateral engagements beteen countries. In the long run, upon return of the emigrants, in a multiple-equilibria situation, ages decrease, yet still are sufficiently high to prevent child labor, hile in a unique bad equilibrium situation, more conditions are required in order to sustain an equilibrium ithout child labor. In this paper, e also present ays to sustain this equilibrium for the long run. 13

16 References Bacolod, Marigee P. and Ranjan, Priya. Why Children Work, ttend School, or Stay Idle: The Roles of bility and Household Wealth. Mimeo, University of California Irvine, July Basu, Kaushik and Van, Pham Hoang. The Economics of Child Labor. merican Economic Revie, June 1998, 88(3), pp Basu, Kaushik. Child Labor: Cause, Consequence, and Cure, ith Remarks on International Labor Standards. Journal of Economic Literature, September 1999, 37(3), pp Basu, Kaushik. The Intriguing Relation Beteen dult Minimum Wage and Child Labor. The Economic Journal, March 2000, 110(462), pp. C50-C61. Basu, Kaushik and Tzannatos, Safaris. The Global Child Labor Problem: What Do We Kno and What Can We Do? The World Bank Economic Revie, 2003, 17(2), pp Boeri, Tito Hanson, Gordon and McCormick, Barry. Immigration Policy and the Welfare System. Oxford: Oxford University Press, Ranjan, Priya. n Economic nalysis of Child Labor. Economics Letters, July 1999, 64 (1), pp Ranjan, Priya. Credit Constraints and the Phenomenon of Child Labor. Journal of Development Economics, March 2001, 64(1), pp Sinnerton, Kenneth. and Rogers, Carol nn. The Economics of Child Labor: Comment. merican Economic Revie, December 1999, 89(5), pp

17 D G S S G F K( ) F B K ( ) 1 2N 2N K 2N ( ) ( 1+ γ ) K( )( 1 2γ ) 2 N + B 2N( 1+ γ ) FIGURE 1. MULTIPLE EQUILIBRI ND TEMPORRY EMIGRTIOM L D S G S B ( ) 2N K N FIGURE 2. UNIQUE BD EQUILIBRIUM ND EMIGRTION B 2 2N( 1+ γ ) N( 1+ γ ) K ( )( 1 2γ ) 2 + L 15