Parental income, child labour, and human capital accumulation: evidence from trade liberalisation in India

ABSTRACT

This article examines whether parental income affects decisions on children’s human capital investment and labour market participation. India’s sudden and unanticipated trade liberalisation was a national policy that created an exogenous variation in industry-specific tariff rates over time. The policy consequently led to variation in workers’ earnings according to their industrial affiliations. The disparity in earnings across industries provides a good setting for identifying the causal effect of parents’ income on child’s labour and schooling, using an instrumental variables approach. The study finds a positive effect of parents’ income on children’s schooling but a negative effect on children’s work. The magnitude of effect, however, is higher for girls compared to boys.

KEYWORDS:

• Globalisation (inc trade
• private sector)
• Labour and livelihoods
• Social sector – Education
• South Asia

Acknowledgements

This article is based on a chapter of my Ph.D. thesis submitted to the University of Leicester, UK. Financial assistance from the Centre for Social Development in Africa, University of Johannesburg, South Africa for the Postdoctoral Fellowship is hereby acknowledged.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Joseph Boniface Ajefu is a member of the Centre for Social Development in Africa (CSDA), University of Johannesburg, South Africa.

Notes

1 Rammohan (2000) showed that increase in schooling costs and child wage rate lead to substitution away from children’s schooling towards child labour.

2 In a related study, Jacobson, LaLonde, and Sullivan (1993) used involuntary job losses (plant closure) as an instrument for parents’ income on the assumption that plant closures are exogenous with respect to employees’ unobservable skills. They compared children of displaced fathers with children of non-displaced fathers with similar observable characteristics. They find a large negative impact of involuntary job losses on earnings.

3 See Appendix for illustration of tariff rate changes in India over time.

4 An indicator variable that takes the value 1 or 0 otherwise if the child’s works as a principal activity and does not attend school (i.e. work only). I refer to this as child labour.