BREAD Working Paper No. 139, February 2007

Child Labor and Household Wealth: Theory and Empirical Evidence of an Inverted-U

Kaushik Basu, Sanghamitra Das, Bhaskar Dutta

Abstract

Some studies have shown that greater land wealth leads to higher child labor, thereby casting doubt on the hypothesis that child labor is caused by poverty. This paper argues that these works fail to recognize that, in many developing countries, the labor market is severely incomplete. The paper models the household's child labor decision when labor markets are imperfect and shows that the relation between land-holding and child labor will be an inverted-U. The theory is tested using a unique data set from India which has information on the hours of work done by each child. The empirical study confirms the theoretical result and shows that child labor begins to decline once the household's wealth crosses 3.6 acres.

Keywords: child labor, land wealth, labor markets

JEL classification codes: D13, J20, O12

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