Do Households Resort to Child Labor to Cope with Income Shocks?

Using four rounds of panel household data from the Kagera region of Tanzania, we show that transitory income shocks – measured by the value of crop lost by farming households – lead to significantly increased child labor. A one standard deviation increase in the shock is associated with a 10% increase in mean child working hours. Moreover, we find that households with collateralizable assets – which we interpret as a proxy for access to credit – are better able to offset the effects of income shocks. This evidence supports the view that credit market imperfections are an important determinant of child labor. * We thank John Strauss and participants of the NEUDC 2002 conference and of the World Bank Social Protection seminar for useful comments. Dehejia acknowledges the National Bureau of Economic Research and the Industrial Relation Sections, Princeton University, for their kind hospitality. The views expressed here do not necessarily reflect those of the World Bank or its member countries. Please address correspondence to [email protected].