What causes child labour and how to curb it

There are different views among academics regarding factors that cause child labour. Some vigorously advocate that demand factors are responsible for child labour; some argue that supply factors are responsible for child labour; and some say that social and cultural factors are responsible for it. Irrespective of personal opinions and disagreements, we may find an approximate answer as to what causes child labour. For this purpose, we first clear our position. The argument that demand factors give rise to child labour is a quite misleading. Moreover, the so-called lack of social awareness does not provide a cogent explanation for child labour. Though lack of social awareness causes child labour, it can happen only in a marginal scale not in a large scale. We will try to provide an explanation how supply factors or supply side causes child labour and show why the explanation based on demand factors is quite misleading.
CHILD LABOUR, POVERTY AND OPPORTUNITY COST OF EDUCATION: To understand the reasons behind child labour, we need to understand how poverty and the opportunity cost of education cause child labour. In one classic study carried out in his famous book The Economic Value of Education, Theodore W. Schulz noted that: (1) Many talented children from low-income families don't continue their schooling beyond the age that is legally compulsory even though tuition is free or scholarships are available to cover tuition. (2) Many children from low-income countries who complete first year of schooling drop out after that.
An analysis of Shultz's two points reveals two critical factors. One is the infliction of poverty on children from the poor and low-income families and the other is, opportunity cost of education. Now, the question is which one dominates in a determinate way to create child labour. One thing is certain that there is opportunity cost of education for children from both the poor and well-off families. But the influence of opportunity cost on them is quite different. To say in economic term, the valuation of the opportunity cost of education for children from the poor and well-off families can be quite different. For example, let's say there is a child X from a well-off family and a child Y from a poor and low-income family. If both X and Y leave education and opt for work, they can earn, let's assume, the same amount of real wage Z dollars. But the value of Z dollars in the eyes of Y can be quite different from that in the eyes of X. If we designate a valuation function by V, then we may say VY(Z)>VX(Z). The reason is that immediate need for income dominates the future return from education for child Y. But for X the immediate need for income doesn't overpower prospective higher return from education. In other words, marginal utility derived from extra unit of current income is higher for the child of the poor family than for the child of the well-off family. Therefore, it is poverty not the opportunity cost of education that determines the total supply of child labour in a country because immediate need for income is triggered by poverty not by the opportunity cost of education.
But as soon as poverty leaves the picture, the opportunity cost of education or current forgone income can't dominate the future return from education. Had the opportunity cost of education determined the supply of child labour, we would have observed children from well-off families in child labour. But this is not the reality. If poverty is the main reason for child labour, then we can claim that demand factors have also no place to account for child labour. It is the supply side that causes child labour. Irrespective of how large and pressing the demand for child labour, we will hardly observe that any child from well-off families is engaged in child labour.
So is the case with the so-called social awareness. People often claim that social awareness can put a halt to child labour. The argument for social awareness is often exaggerated. It is given the amount of attention that it doesn't deserve. Rather social awareness has turned into a business agenda. Industries exploit child labour and they, in turn, support initiatives for raising social awareness in terms of their so-called social responsibility. The case is like taxing tobacco by the government and supporting the existence of tobacco industries through taxation.
CHILD LABOUR AND THE FREE TRADE: Proponents of fair trade theory advocate that free trade will increase the demand for child labour in underdeveloped countries. So, we should then observe an upward rising relation between supply of child labour and free trade or the degree of trade openness.
From a very basic observation, it seems that free trade increases the demand for child labour and the derived positive statistical relation between child labour and free trade is quite plausible. For example, if one collects data on the supply of child labour after each stage of tariff reduction and reduction of other trade barriers, one can see that trade openness is accompanied by the increased use of child labour. However, this positive relation doesn't anyway mean that supply of child labour has increased because there is an increased demand for child labour. Instead the fact may be that child labour has moved in proportion with free trade but that proportion itself doesn't depend on the scale of demand. This thing can be illustrated by giving a very simplified view as follows:
Irrespective of the condition whether trade is open or restricted and the level of demand, the proportion of children engaged in child labour will remain almost unchanged since the proportional constant that determines the supply of child labour doesn't depend on the scale of demand. Therefore, the positive relation between free trade and use of child labour is a statistical figment. The figment arises as follows. When somebody collects data solely on the use of child labour and tariff reduction or trade openness and try to measure the relation between free trade and child labour, one observes a positive relation because the factors determining the supply of child labour are left totally out of the data. And the data contain no information about what caused child labour except some numerical numbers. This deludes one to the belief that free trade increases the demand for child labour. If the factors causing the supply of child labour are totally absent, then we argue whatever the level of demand we will hardly observe any supply of child labour.
HOW TO STOP CHILD LABOUR? Schultz's observation implies that if the opportunity cost of education is equalised between children of low-income families and children of the well-off families, children of low-income families may prefer education to work. But public spending in terms of free education will not work effectively to prevent child labour since free education doesn't lower the opportunity cost of education for children of the low-income and poor families. This observation has an important implication for our country.
Instead of spending too much on free education, the government should allocate some resources for those families that suffer from poverty since children of these families are usually engaged in child labour. Free education is like a tax rebate. This tax rebate or price effect will not come into effect until the income effect dominates it where the income effect comes in the form of opportunity cost of education. The immediate need for family income and the pressure from poverty dominate the incentive given by free education. For this reason, much attention should be given to lowering opportunity cost of education for the children of the low-income families. This requires the reduction of the poverty and reducing the degree of economic inequality. One feasible way to achieve this is to use taxation to redistribute resources from the very well-off to the very poor.
CONCLUSION: Now we summarise the main conclusions of the above analysis. Firstly, child labour is not caused by the demand factors but by the supply factors. The demand factors can take effect or increase the degree of child labour if and only if the supply factors exert influence on child labour. One supply factor that causes child labour is opportunity cost of education for children from the low-income families.
Secondly, the usual positive relation between free trade and child labour is a statistical figment that is caused by the data themselves since data contain no information about what cause child labour except the numerical number on the use of child labour.  
Finally, instead of solely concentrating on free education, the government should try to reduce the degree poverty of those families in which children are engaged in child labour. This measure will reduce the opportunity cost of education for children of the low-income families.
Md. Jamal Hossain is with the University of Denver and Md. Mustafizur Rahman with the Bangladesh Institute of Bank Management (BIBM).] [email protected]