Income Shock and Child Labour: Revisiting the Poverty Link

Abstract

The COVID-19 pandemic has triggered massive supply chain disruptions, job losses and income shocks at the micro-level. This has repercussions on the labour market outcomes not only at the macro-level but also at the micro-level labour supply decisions. This article provides a theoretical model of the impact of such recessionary income shocks on household’s child labour (CL) decision. CL has been a major concern for the developing world, especially for India with its goal towards ‘inclusive growth’. Parental altruism and choice of substituting CL income by their own are endogenous. Interestingly, income shocks have ambiguous effect on CL in general, but they have a clear positive impact on regions with high cost of living. When wages are inflexible, such shocks, depending upon their extent, might be CL-inducing as well as poverty-enhancing. It infers that any in-kind transfer or policies such as mid-day meal that essentially reduces cost of living is always CL-reducing. JEL Codes: J13, J29, D10