Market imperfections and child labor

There is some indirect evidence that the absence of markets might cause child labor. However the existing literature is silent on whether marginal improvements of the markets functioning would reduce child labor. This paper models rural households’ labor supply when the degree of imperfections on the labor market vary and the land and credit market remain absent. We highlight the heterogeneity in households’ responses: some households may increase their child labor use following an improvement on the labor market, even when children are assumed not to be able to sell their workforce outside of the household. We use Malagasy data to estimate the relation between child labor and various measures of markets imperfections. We match those data with a municipality census so as to control for a large set of village characteristics. We find that on average market imperfections (labor but also land and credit) do indeed increase child labor and obtain heterogenous effects by land ownership that are consistent with the theoretical model. The results point to the fact that an improvement of markets competitiveness should decrease child labor (and even the more so for labor markets), which provides an alternative policy to fight against child labor.