Returns to work, child labor and schooling: The income vs. price effects

This study examines the impact of returns to work, for adult labor and child labor, on child work and schooling outcomes. We propose an empirical strategy that sheds light on the underlying income and price effects. Specifically, we exploit variations in child labor intensity across crops and exogenous changes in crop tariffs following the 1991 Indian trade liberalization. Exploiting pre-reform district variations in crop composition, we find opposite effects of tariff reductions for adult labor-intensive crops and child labor-intensive crops: while reductions in the returns to adult labor lead to a negative income effect that reduces schooling, reductions in the returns to child labor increase schooling due to the countervailing price effect. We further document substantial heterogeneity across gender: the price effect outweighs the income effect for boys, but not for girls. Using a back-of-the-envelope calculation, we estimate the schooling elasticities with respect to returns to adult labor and child labor to be 0.23 and −0.86 respectively.