When costs are a wise investment

THE HUMAN FACTOR

With credible estimates ranging from 100 to 115 million, India has the largest number of working children in the world. If the number is swelling by the day, bureaucrats have a ready answer: elimination of child labour is impossible unless it becomes a people's project. And that, they say, is wishful thinking in a country where a child labourer's income is important to the livelihood of a poor family.

A bureaucrat quotes an estimate done by the International Labour Office, Bureau of Statistics, which found that in most cases, a child's income accounted for over 25 per cent of the total household income in India. "In such a scenario, what can the government do?" the bureaucrat asks, with an air of resignation.

He may find some answers from a pathbreaking study done by the International Labour Office (ILO) on the costs and benefits of eliminating child labour. The study, released in India last week, says the benefits of eliminating child labour will be nearly seven times more than the costs, or an estimated $ 5.1 trillion in the developing and transitional economies, where most child labourers are found. Eliminating child labour will yield an enormous return on investment (ROI)," the study says.

Here's how. Since the progressive elimination of child labour over the next 20 years would deprive families of the economic value of their children's labour (with child labour eliminated, the global opportunity cost borne by households would total $ 246.8 billion), the study factors in the costs of a global programme of income support to poor households that commit to sending their children to school.

Modelled on the existing successful Bolsa Escola programme in Brazil, the study costs out a similar form of child benefit phased in over 20 years, which would transfer up to 80 per cent of the average value of a child's labour to poor households.

The income transfer programme (from the government to the poor family) would provide poor families with a grant equal to 80 per cent of the value of child labour times the number of school-age children, irrespective of whether their children were actually working. This is provided the sum does not exceed the average poverty gap (the average amount poor families would need to meet the poverty line).

The ILO study applies a model to developing and transitional economies worldwide and says that globally, the economic benefits of the fight against child labour exceed costs by a ratio of 6.7 to one.

All regions of the world would experience large net gains from the elimination of child labour, although some would benefit more than others. In north Africa and west Asia, for example, the benefits would be the highest relative to the costs (8.4 to one), whereas in sub-Saharan Africa they would be the lowest (5.2 to one).

In Asia, the ratio would be 7.2 to one, in transitional countries 5.9 to one, while in Latin America it would be 5.3 to one. The global net economic benefits of the programme would amount to 22.2 per cent of aggregate annual gross national income.

According to the study, in the first years, the costs of eliminating child labour would almost certainly exceed returns. However, net economic flows would turn dramatically positive as the effects of improved education and health take hold. By 2020, costs would be far outweighed by the returns, leaving annual benefits of around $ 60 billion.

The study argues that the costs are a "wise investment" because each extra year of schooling stemming from universal education to the age of 14 results in an additional 11 per cent of future earnings a year, yielding global benefits of just over $ 5 trillion. On the cost side, the supply of education accounts for nearly two-thirds of the total costs.

Reaping the economic value of expanded education depends on countries' ability to create new jobs, take advantage of higher levels of human capital and develop economic policies to stimulate growth, the study admits. Yet even if the effect of education on future earnings was halved to 5 per cent, the study estimates that global benefits would still exceed $2 trillion.

This is important for countries like India where the state of education has always lacked effectiveness in yielding basic literacy. India's overall literacy rate of 64 per cent lags behind several other developing countries and the primary-school survival rate is lower than that of China and Sri Lanka.

According to recent estimates, Kerala's emphasis on primary education has led to a school dropout of close to zero per cent, and a low child work participation rate of around 2 per cent compared to the Indian average of close to 10 per cent.

Human Resource and Development Minister Murli Manohar Joshi would do well to take a break from his spat with the Indian Institutes of Management, and read the ILO report.