An Economic Perspective on Child Labour


Everybody loves a bargain. But, the softest cotton can come from the harshest of conditions. Behind the excitement and price slashes of mid-year sales is the sorrowful reality of child labour. 

According to the International Labour Organisation (‘ILO’) and UNICEF’s global estimate, the number of children in forced labour has increased for the first time in twenty years in 2020. In the year to 2020, farmers produced 26 million tonnes of cotton worldwide. However, it is estimated that 17 countries use forced or child labour in the process (The Economist, 2020). Child labour stunts children’s education, health and wellbeing. The number of 5-11 year olds used in child labour worldwide increased by 16.8 million in the four years to 2020. About 8.4 million are estimated to be employed in dangerous work such as such as fishing and mining (The Economist, 2021). This is 8.4 million too many

Why does child labour occur? 

While popular imagination condemns child labour at the hands of greedy entrepreneurs, the cause of child labour equally stems from poverty. Families in developing countries are driven by necessity to send their children to work. As cited by the International Labour Organisation, a 1 percentage point increase in poverty leads to a 0.7 percentage point increase in child labour of a country (The Economist, 2021). Migrant families typically rely on their children to work in fields or mines to supplement the family income. Children are valuable human capital because their energy levels and nimble fingers are suited to picking cotton and other crops.

But we must not underestimate the role and limitations of institutions in the child labour problem. With inadequate schooling, parents prefer to send their children to work because they have little faith in reaping the long term benefits of education. Governments of developing countries struggle to regulate their labour markets. This means that farms may avoid audits and pecuniary penalties for the use of child labour. Moreover, harvesters are often bound to their agents until the agent receives a payment from the middleman. 

The popular solution

The popular solution is a total ban on child labour. What would this look like? In a perfect world where the ban is enforceable, the number of workers in the labour market shrinks as children become unavailable. The derived demand for labour causes adult wages to increase, leading to a new market equilibrium where families have greater income. This removes the need for child labour. Many brands have switched away from child labour to avoid legal and reputational implications. In 2021, the American government banned importation of cotton made using forced Uyghur labour. As a result, China’s share of America’s cotton market decreased from 31% to 26% (The Economist, 2020).

However, this model assumes that developing economies can perfectly enforce the ban, which is not the case. Despite having some leverage, brands lack the practical means to enforce ethical standards. With a supply chain with as many nodes as the cotton industry, it is difficult for brands to audit firms with which they have little affiliation, let alone a contract. 

On the contrary, a total ban on child labour may backfire. In response to the ban, businesses and factories fire their child workers to comply with regulations, but children begin labouring on their own family farms. Here they may be subject to more onerous and dangerous conditions. Other interventions such as the forced removal of children from farms and fishing villages in Ghana’s cocoa industry, combat child labour … but at the expense of the child’s basic right to live with their families.

Forced labour only worsened over the Covid-19 pandemic. The recession in the global economy decreased the price of crops like cotton, lowering costs, and boosting demand. Lockdowns limited work opportunities for income, and poverty worsened. School closures forced children into the alternative of labour. UNICEF Executive Director, Henrietta Fore, urged “governments and international development banks to prioritize investments in programmes that can get children out of the workforce and back into school, and in social protection programmes that can help families avoid making this choice in the first place(UNICEF, 2021). 

The economic solution 

It is easy to see the immorality in child labour. It is harder to come up with a solution. Equipped with an economic understanding of the problem, organisations have formed the view to improve conditions for child labourers, rather than eradicate the phenomenon completely (The Economist, 2021).

Basu and Van’s paper ‘The Economics of Child Labour’ proposed that the solution to child labour is to attack the problem at its source – that source being poverty. Research shows that families typically send their children to work if their income drops below the cost of living. 

Investment in education infrastructure may alleviate poverty. Education infrastructure may increase families’ faith in career prospects for their children. This would heighten the opportunity cost of child labour and instead incentivise families to send their children to school, in the hope of a longer term financial gain. 

Similarly, investment in women’s education may allow families to earn additional income through running small businesses. The supplementary income would reduce child labour as a source of family income.


Basu K & Pham V 1998, ‘The Economics of Child Labour’, The American Economic Review, vol 88, no. 3.

‘Can the stain of forced and child labour be removed from cotton?’ The Economist, 2020, viewed 20 July 2022 


‘Child labour rises to 160 million – first increase in two decades’, UNICEF, 2021, viewed 20 July 2022 <>. 

‘The number of child labourers has increased for the first time in 20 years’ The Economist, 2021, viewed 21 July 2022 <>.

‘Why the number of children working is rising’, The Economist, 2021, viewed 21 July 2022 <>.