Feeds:
Posts
Comments

Posts Tagged ‘Child Labor’

One of my great frustrations (and there are many) is that the conventional wisdom about economic history oftentimes is wrong. It is very common for students to learn things that simply are not true.

Let’s add to that list by looking at the issue of child labor. The conventional wisdom is that child labor was a regular feature of an oppressive capitalist system and that children were eventually saved from abuse thanks to government intervention.

Hardly. Child labor was – and still is, in some places – a way for desperately poor people to stay alive and perhaps create a stepping stone for a better future. And capitalism-enabled prosperity is the best way to end the unfortunate practice.

I previously cited some World Bank research, in a postscript to a column on bureaucracy, showing that restrictions on child labor had negative long-run effects on income for poor people.

Let’s augment that research. Here are some passages from a very sobering study about the unintended consequences of restricting child labor (h/t: Dev Patel via Tyler Cowen).

While bans against child labor are a common policy tool, there is very little empirical evidence validating their effectiveness. In this paper, we examine the consequences of India’s landmark legislation against child labor, the Child Labor (Prohibition and Regulation) Act of 1986. Using data from employment surveys conducted before and after the ban, and using age restrictions that determined who the ban applied to, we show that child wages decrease and child labor increases after the ban.

Some basic economic analysis shows why this happens.

…families use child labor to reach subsistence constraints and where child wages decrease in response to bans, leading poor families to utilize more child labor.

And it’s worth noting that there are all sorts of harmful secondary effects.

The increase in child labor comes at the expense of reduced school enrollment. We also examine the effects of the ban at the household level. Using linked consumption and expenditure data, we find that along various margins of household expenditure, consumption, calorie intake and asset holdings, households are worse off after the ban.

The bottom line on this issue is that some children are born to very poor families in very poor nations. In those tragic situations, child labor is a matter of survival rather than a lifestyle choice.

I don’t think that the businesses employing children are noble. Indeed, I wouldn’t be surprised if some of them mistreat kids. And even the nice ones probably would seem horrifying to those of us lucky enough to live in rich western nations.

But I also don’t believe in putting good intentions above real-world results. Businesses that employ child labor are offering a better (or, to be more accurate, offering a less-worse) opportunity for people stuck in horrid poverty. Capitalism is the only effective escape from economic misery.

Let’s close with some libertarian satire. It’s focused more on sweatshops, but it also applies to child labor (and “neoliberal” refers to “classical liberal” rather than modern leftism).

For what it’s worth, child labor was ubiquitous in the western world prior to the explosive growth that was unleashed by free markets and limited government.

If we want poor children in poor families from poor nations to have a better life, we should urge the same policies in the developing world. Assuming we prefer good results over good intentions, of course.

Read Full Post »

What are the main problems with government bureaucrats?

Is it that they’re paid too much? Given that they get far more compensation than workers in the economy’s productive sector, that certainly true.

Is it that there are too many of them? Well, we have lots of bureaucracies that shouldn’t exist, such as HUD, Education, Transportation, Agriculture, etc. So that’s true as well.

But there’s another possible answer. People employed by government take advantage of preferential rules in ways that should get all decent people upset.

Writing for Reason, Eric Boehm tells us about a cop who successfully mugged taxpayers in Paterson, New Jersey.

Despite not having to show up for work since June 2007, Manuel Avila received periodic increases in pay, managed to double his monthly pension and qualified for free healthcare for the rest of his life at the expense of city taxpayers. Avila qualified for all those benefits while spending the past nine years on paid leave from the Paterson, New Jersey, police department because he was under investigation for having sex with a female prisoner at the city’s jail.

Wow, go fishing every day, get pay increases, a fat pension, and free healthcare. Where can I sign up for that deal?

Government, of course.

And let’s not overlook sex with a female prisoner, which gives a whole new meaning to the notion of fringe benefits. Reminds me of the Pennsylvania bureaucrat who came up with the clever idea of trading welfare benefits for sex.

But the story is actually more disturbing (at least from the perspective of taxpayers) than you think.

It gets worse, though, because that crime would never have happened if Avila’s bosses hadn’t already been trying to give his retirement benefits a little boost. …Avila—apparently with plenty of help, or at least an abundance of people willing to look the other way—was able to boost his annual pension to about $70,000 from an estimated $32,000 if he had been forced to retire in 2007 when a police psychiatrist recommended removing Avila from the force. “But instead of forcing Avila out of the police department, city law enforcement officials decided to allow him to stay on the job for another six months so he could reach a critical pension milestone of 20 years, the court records show,” the Paterson Press wrote. While there, he was charged with sexually assaulting a female prisoner. Those charges were dropped in 2010 after the city paid an undisclosed amount of money to the accuser as part of a settlement, but Avila remained on paid leave from the department until finally retiring this year.

This is galling. If Mr. Avila misbehaved and was declared unfit, why wasn’t he immediately terminated?

And now that we’ve learned about this scandal, why aren’t the officials who enabled this ripoff being fired?

At the risk of repeating myself, the answer is government.

There are two broader policy lessons from this scandal.

First, the use of “defined benefit” pension systems for bureaucrats should be discontinued. By way of background, these “DB” plans promise workers guaranteed monthly payments based on formulas including factors such as years worked and highest pay levels. There is no reason why DB plans can’t be feasible and successful (indeed, the Netherlands has a private Social Security system based on this model), but politicians at the state and local level repeatedly have demonstrated that they are incapable of operating this type of system, both because they promise lavish benefits (on top of overly generous pay levels) as a means of buying political support (using our money) from government workers and because they then don’t set aside enough money to finance the generous benefits they have promised. That system may be good for getting reelected in the short run, but it’s also why there’s a multi-trillion dollar shortfall that is contributing to deep fiscal problems in states such as Illinois and California. To stop from going deeper in the red, states should switch to “defined contribution” plans, which work similar to the IRAs and 401(k)s that are now prevalent in the private sector.

Second, something needs to be done to curtail the power of government unions. It’s not just that they conspire with politicians to get excessive pay for bureaucrats, but they compound that damage by also insisting on rules that make it very difficult to discipline or terminate problem employees. In the private sector, employees generally work “at will,” which means they can be fired without reason (this is one of the reasons the United States is near the top in the World Bank’s Doing Business ranking. In government, by contrast, slackers, trouble makers, and other undesirable employees are shielded from this discipline. And that results in cases (such as the example discussed above) that are bad for taxpayers and bad for government. I don’t know if this means that unions should be prohibited (as even President Franklin Roosevelt believed), but surely one lesson to be learned is that there needs to be a much tougher approach when contract negotiations take place.

P.S. Let’s shift to a different topic. I’ve written many times about the gap between intentions and results in government. It’s very common to see politicians vote for laws that (at least in some cases) they think will help people, but they fail to recognize the indirect or second-order effects of government intervention.

Now we have another example. Almost all politicians will agree that it’s a good idea to prohibit child labor in poor nations. But what if poor families don’t have any better options? Could it be that government intervention will hurt the people who are supposed to be helped?

According to the World Bank (not normally a hotbed of libertarian thought), the answer is yes.

The study explores the law that increased the minimum employment age from 14 to 16 in Brazil in 1998, and uncovers its impact on time allocated to schooling and work in the short term and on school attainment and labor market outcomes in the long term. The analysis uses cross-sectional data from 1998 to 2014… The estimates show that the ban reduced the incidence of boys in paid work activities by 4 percentage points or 27 percent. …The study follows the same cohort affected by the ban over the years, and finds that the short-term effects persisted until 2003 when the boys turned 18. The study pooled data from 2007 to 2014 to check whether the ban affected individuals’ stock of human capital and labor market outcomes. The estimates suggest that the ban did not have long-term effects for the whole cohort, but found some indication that it did negatively affect the log earnings of individuals at the lower tail of the earnings distribution.

So the bottom line is that lower-skilled workers missed a chance to earn money when they were young and they then suffered income losses over time as well.

Bastiat certainly wouldn’t be surprised by this outcome. And if the lower-skilled workers understood how they were hurt, I’m sure that they wouldn’t feel very grateful to politicians for their “compassion.”

P.P.S. This reminds me of the “sweatshop” controversy. The left wants to ban factory work in the developing world because they don’t understand or appreciate that such jobs are a great opportunity when nations are at a certain stage of development.

P.P.P.S. This isn’t the first time that the World Bank has produced good research. In 2014, the bureaucrats released a good study showing how high tax rates facilitate corruption. And in 2012, they issued a study explaining how large public sectors undermine prosperity.

Read Full Post »

%d bloggers like this: