051961-ECONOMIC ESSAY 1
The Role of Child Labor in theFormation of Human Capital
Human capital is a tool forestablishing a country’s economic growth (Amidon, 2004). In theearly 1980s, the concept of human capital and its impact on economicgrowth become prominent due to work of Lucas (1988) thus takingattention from economists. The relationship of human capital to thegrowth of economy came up with different possibilities. Based on theanalysis of Barro (1991) and Gemmell (1996), it was found out that afirm relationship between human capital and economic growth.Conversely, Benhabib and Speigel (1994) found out that negativerelationship exist between economic growth and capital. Thisrelationship is complicated due to a number of factors affectingeconomic growth process including political stability, financialsector development, industrialization policies, inflation tradepolicies, investment in physical capital and the size of the laborforce.
Based on statistics gathered fromthe ILO in 2006, there are about 218 million children who are lessthan fifteen years of age involved in child labor (Sim et al., 2012).Most of them work for either family business or agriculturalactivities. The main issue regarding child labor is if children mustwork in order to contribute to the family income and increase theopportunities for them at the same time or if child labor is a rootcause of failure in resources allocation thus leading to poverty(Purkayastha, 1998). Baland & Robinsons (2000) pointed out thatchild labor is not good if it affects their future to earn badly.Rendering their services while they are still at young age can affecttheir schooling which can either lead to stop attending classes orpursue it while working at the same time, their future earning andtheir health conditions. Sim et al. (2012) found out in their studythat keeping the focus on the output measure regarding human capitalleads to negative effects of child labor. Also, it was observed thatdisadvantageous effects on human capital can still be encounteredeven if the child labor is within the limits as set by the law.
Studies on the effect of childlabor in the formation of human capital have been conducted. Phoumin(2007) pointed out in his study that child labor is in directconflict with the formation of human capital of children. It has beenemphasized that education contends with the labor jobs that thechildren do. These intensive jobs comprise wage labor,collective/community labor activities or employment in familyenterprises. Children tend to work for the family due to insufficientincome thus keeping them out of school. This aggravates poverty’srole as the origin of child labor. Child labor can only be totallyeradicated by eradicating poverty.
Becker (1993) pointed out thathuman capital formation can be achieved through promotion ofeducation and training. These two factors are significant ineradicating poverty. However, household that lack basic necessitiesand insufficient funds are not hold back by these factors sincesurvival is their main priority. As a result, most of the childrenbelonging in poor households have no choice but to work only or workwhile studying. A child’s schooling is significant in determiningwage rate thus affecting the household’s decision whether or not toinvest on it. In reality, schooling is really important for eachperson. However, parents’ must decide on what path to choose ifscarcities in financial sources are faced. Their families must weighthe advantages and disadvantages of the future investments toeducation. The profits used for education mainly depends on factorssuch a growth of the economy and gains in the education structure. Inorder to tend to such matters realistically, poor households usedtheir own experience in concluding whether education has futurereturns (Sirohi, n.d.).
Emerson and Knabb (2007)presented a model regarding the relationship of child labor and humancapital. Two assumptions were formulated for this model. First isthat the child labor decreases the viability to accumulate humancapital. Usually, children who work are not guaranteed if they canstudy or not. It is also assumed that parents do not fully understandthe gravity of child labor. They are withheld by their rationalitythat they fail to understand the complex relationship between childlabor and their development.
Purkayastha (1998) pointed out inhis study that the conventional economic theory has varyingexplanations regarding child labor that there is nothing much to fussabout this matter. However, the media believes that it is entirely adifferent story. Health conditions of children working were observedto be in bad condition that even led to some of them beingpermanently disabled. Another effect of child labor is theireducation opportunities are compromised. It is either they continuetheir schooling while working or totally stop attending school. Thisleads to the slow formation of human capital especially in leastdeveloped countries. Suggestions were made to establish lawsregarding education versus child labor. Furthermore, the existence ofanti-child labor laws and it sanctions are examined if it can providedevelopment to the child’s welfare, health, education andinvestment in human capital. Parental power has also been in questionif it affects child labor and the formulation of human capital.
Purkayastha (1998) discussed inhis paper the economic theory of child labor. Based on the efficiencywage model, he focused on the improvement of the health of a workingchild through full implementation of sanctions. Another model thatwas discussed in the paper is the Becker-type models. This modelstates that:
“As children grow, the cost ofchildren rises, fertility falls, the quantity of child rises and thefamily reaches a higher level of utility.” (Becker & Lewis,1973 cited by Purkayastha, 1998).
Children who are consideredworkers affect their family income since they reduce the costs thatare allotted to them by their parents. This case, however, might leadto increase in fertility cases. Upon intervention of the governmentin discouraging child labor, the long term effect results to reducedfertility cases and increased in the value of the children they have.Even though this should imply a positive attribute in child laborscontribution to formation of human capital, poor households will endup suffering due to insufficient resources. Currently, it isdiscouraged to hinder child labor since it is becoming a necessity inthe aforementioned case. Since the Becker-type model focused onstudying about the effect of household time allocation, it is alsoimportant to study the effect of health on child labor thus theillustrated by the efficiency wage model. The efficiency wage modelfocuses on the allocation of resources will be done by maximizing thefull income.
Sirohi (n.d.) mentioned in hisstudy that child labor’s development through time has shown an“inverted-U” shaped pattern. This supports Krugman’s hypothesisthat child labor is a temporary consequence of ineffective economicdevelopment. It was also found out that child labor existence maypersist longer than expected. In order to further study this case, athree period OLG model was constructed. Factors considered are theendogenous mortality and child labor that both persists in privateand public academic systems. Schooling and non-schooling inputs wereused as factors for effect on human capital. The expected results tothese assumptions are two contradicting ideas for child labor. Firstis child labor compromises education thus reducing human capital. Theother result is that the profits gathered from working will boostthem to invest in inputs other than schooling.
The relationship between childlabor and formation of human capital depends on the decisions oftheir household. The human capital, which is important for economicdevelopment, forms from the investments in children. The householddecision regarding education for their children and their survivalcan either lead to child labor, high fertility or unfinishedschooling (Emerson & Knabb, 2007). The objective of this researchis to determine the role of child labor in the formation of the humancapital and its effect on economic growth.
In the quantitative analysis onthe role of child labor in human capital, it is better to analyze thepositive effects of child labor. Child labor could be a benefit for achild in terms of earnings and possible human capital formation.However, it lacks empirical and theoretical model. Most of thetheoretical and empirical models of the child labor on human capitalformation uses years of attainment in school because it is the mainaspect of the human capital investments. (Baland and Robonson, 2000)
The theoretical model andapproach on the role of the child labor supply to the human capitalformation assumes that individuals tend to maximize rational utility.In simple terms, the parents from the poor countries will balance thechildren’s schooling hours and labor hours to maximize householdutility. The model will analyzes as human capital to be the hours inschool spent by the child and the education expenditure of thehousehold such as the purchase of books, notebooks and other schoolsupplies. In the analysis of the theoretical model, it can beconcluded that the parents believed that the school and work isimportant for the household. The analysis also shows that the parentswill only prefer their children to stop o work if the labor workcould cause harm to the children. The theoretical model could showthat the child labor is difficult to stop for the poor countries(Fan, 2004).
In the empirical analysis of therole of the child labor on the human capital, different variablesshould be considered such as the education expenditure of differenthouseholds and the schooling hours of the children which also spendtheir time working. The empirical study aims to find if there is arelative trade-off between the outcome of the child’s schooling tothe hours work by the child rather than the participation of thechild on the labor force. To investigate on the issue, the rate ofreturn of the child labor should be estimated. The estimation willalso understand how the earning capacity of the child’s labor couldbe a factor for their labor participation. The empirical analysisalso tries to find the trade-off between the supply hours for childlabor and the outcome of schooling (Phoumin, 2008).
The Mincer’s human capitalearnings is used for the empirical study since it is the most commonmodel used by the economist for the investigation of the rate ofreturns of the human capital especially for different situations. Thehuman capital of child labor will be easily estimated with this modelwhich used linear regression system and concepts between schoolingterm and potential polynomial experience. The rate of returns of thehuman capital on child labor when there is a discrete discountingprocess is:
The rateof returns of the human capital on child labor when there is acontinuous discounting process is:
N= number of hours of labor forchildren
Ys= annual earnings of the child with s as the number of years
Vs= current value of the child’s earnings towards the start ofschooling
r = discount rate
t = time in years
d = years of differential time inschooling (Phoumin, 2008)
The equation could be used toshow the linear function of the time spent in school and the earningsof the child in the participation in the child labor. The empiricalstudy and model for the method of investigating the role of childlabor in human capital is based on the concept that there is anegative relationship between the formation of the human capital andthe trade-off in the hours of work of the child in participation inlabor (Phoumin, 2008).
For the empirical study andquantitative analysis of the role of child labor on human capital,the child labor in Cambodia is studied. The situation in Cambodia isthat the child labor is high since the children prefer to managetheir time in school and in the time for labor. The data set involvesthousands of child labor condition which can be economic andnon-economic purposes. The study uses the variable SAGE toinvestigate the schooling outcomes. SAGE means Index of SchoolingAttainment Relative to Age which can be defined in the equation:
For better schooling outcomes,the SAGE must be a high value (Phoumin, 2006).
Human capital formation could bea trade-off in the children’s labor hours. However, this studieslack empirical and theoretical model. The first impression for thechild labor is that in reduces the ability for future ability of theindividuals to earn. In the study, they have concluded that childlabor would decrease the human capital formation of the children forthe analysis of the schooling years. However, if the analysis is madefrom the labor perspective of the child, the child could acquiresocial and labor skills which also contribute to the human capitalformation of the person. Most of the models are based on the ideathat there is a bad effect for child labor in the human capitalformation because the models used years of attainment in schooling asthe variable. The human capital formation approach on the child laborlacks empirical studies and models (Phoumin, 2006).
For the analysis of the issue ofthe child labor on human capital, different approaches should beconsidered. There are studies to show the negative effects of thechild labor but there is no denying the social and labor capitalformation could be acquired in the human capital. However, humanethics does not teach a parent to bring their child to participate inthe labor rather than learning in school.
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