According to the Bureau of Statistics of the International Labor Organization (ILO), in 2000, about one-fifth of all children under 15 years of age had jobs and about 171 million of children ages five to 17 were working under hazardous conditions.
The occurrence of child labor is often thought to be associated with at least one of the following two factors: poverty and/or capital market failure. The occurrence of child labor is clearly dependent on a family's financial needs. Children become child laborers when doing so is a matter of family survival, not because they want to. In fact, economists have said there is a strong negative correlation between per capita Gross Domestic Product (GDP) and the participation of children in the labor force. In other words, as average income rises, the occurrence of child labor decreases. This relationship tells us that in order to decrease child labor we have to increase average income. Any policy which results in a decrease in average income is counter-productive.
The lack of access to capital markets for most low income families in the developing world is another cause of child labor. Without access to capital markets families who need to borrow money have no choice but to enter into bonded labor contracts where they put their labor or children's labor as collateral for a loan.
The problem is that this further reduces the availability of capital markets. Banks are unlikely to lend money if they know that families can obtain a second loan by bonding their labor. The bank has a higher default risk than the bondholder since it is easier for the bondholder to enforce the loan agreement than for the bank to do so. Thus, increasing the availability of capital markets and outlawing bonded contracts would help reduce the occurrence of child labor.
Another intuitively-appealing solution to the problem of child labor is the creation and enforcement of international labor standards. The International Labor Organization has been advocating for labor standards since 1919. It has put out various 'conventions' and 'recommendations' on human rights. But these conventions are non binding and so while many countries have signed them, no progress has really been made. The problem is that many countries do not mind ratifying broad non binding conventions but are reticent to sign specific and binding agreements which could subject them to sanctions by the World Trade Organization (WTO).
One reason why it has been difficult for countries to agree on labor standards is that cultural norms and level of economic development vary from country to country. In addition, developing countries feel that they should not have to agree to labor standards when countries such as the United States did not have such standards in place towards the beginning of the twentieth century.
But the discussion of labor standards is, in my opinion, over the existence of natural rights in the workplace and not over their relation to socio-economic factors. Thus, whether the United States did not have standards in the past is irrelevant. What is important, however, is to learn from the past failure of various countries to implement labor standards. We know that worker productivity begins to decrease after a 40-hour workweek. We know that a lack of education in the early years of child's life will greatly affect her cognitive abilities and her future earning power.
Therefore, in my opinion, labor standards must be implemented and enforced. But this can only be done if countries can be given an incentive to ameliorate working conditions. It seems to me that labor standards and international trade are inextricably linked. As a result, one of the main obstacles to implementing labor laws is the lack of coordination between countries.
Consider the following example: A country wants to raise labor standards in its import competing sector. But for a small country, the price of the good is fixed on the world market. This means that the cost of increasing labor standards is born solely by the producer. Because domestic producers cannot raise their prices, they cannot pass on the cost of labor laws to consumers. This means that they become less competitive relative to foreign firms.
Without the harmonization of labor standards, countries have an incentive to reduce labor standards since doing so would increase the competitiveness of their import competing and their export sectors. This is not the case, however, if countries simultaneously raise labor standards. In this situation, the world supply decreases thus allowing producers to raise their prices and thus pass some of the cost of labor standards to consumers.
The problem is that the current WTO charter does not reward countries for implementing labor standards. In fact, the current WTO rules discourage developing countries from increasing labor standards. When countries join the WTO they have to agree to permanently lower tariffs and other barriers to trade. When they do so, they give up the policy tools usually used to protect their import competing sectors. Since raising labor standards decreases competitiveness and countries cannot increase barriers to trade, they cannot ameliorate the position of domestic producers.
Therefore, if we are committed to an increase in labor standards we should lobby to get the United States to push for a change in the WTO charter to include the following mechanism advocated by Bagwell and Steiger. They argue that since when countries join the WTO they agree to maintain a certain level of market access, countries should be allowed to readjust their tariffs when changes in domestic policy lead to a change in market access. Countries should be allowed to increase tariffs when they increase labor standards. This would remove any penalties from increasing labor standards while keeping market access unchanged.
Samuel Ronfard is a senior majoring in philosophy and economics.
