Human Capital Investment in the Presence of Child Labor

70 Pages Posted: 26 May 2020 Last revised: 31 Jan 2022

See all articles by Natalie Bau

Natalie Bau

University of California, Los Angeles (UCLA)

Martin Rotemberg

New York University (NYU)

Manisha Shah

UCLA; NBER

Bryce Steinberg

Brown University

Date Written: May 2020

Abstract

Policies that improve early life human capital are a promising tool to alter disadvantaged children's lifelong trajectories. Yet, in many low-income countries, children and their parents face tradeoffs between schooling and productive work. If there are positive returns to human capital in child labor, then children who receive greater early life investments may attend less school. Exploiting early life rainfall shocks in India as a source of exogenous variation in early life investment, we show that increased early life investment reduces schooling in districts with high child labor. These effects persist and are intergenerational, affecting adult household consumption, and lead to a divergence in the next generations' educational outcomes. Our results are robust to instrumenting for child labor prevalence with crop-mix and to the inclusion of a rich set of district-level characteristics. We provide evidence that reductions in educational investment in response to positive early life shocks are total welfare-reducing.

Suggested Citation

Bau, Natalie and Rotemberg, Martin and Shah, Manisha and Steinberg, Bryce, Human Capital Investment in the Presence of Child Labor (May 2020). NBER Working Paper No. w27241, Available at SSRN: https://ssrn.com/abstract=3609694

Natalie Bau (Contact Author)

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

Martin Rotemberg

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Manisha Shah

UCLA ( email )

Department of Public Policy
Los Angeles, CA 90095-1656
United States

HOME PAGE: http://luskin.ucla.edu/person/manisha-shah

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bryce Steinberg

Brown University ( email )

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