Does an increase in household wealth decrease child labor in poorer households? Available literature in economics suggests that when poorer households need to make their ends meet, they tend not to dispense on child labor. And as households’ income increases, child labor declines in favor of schooling. However, if schools are few and far, and their infrastructure and teachers’ performance are deficient, there is less incentives for parents to send their children to school. Child labor would then appear as a sensible option, not only for increasing family’s current income but also for training children in skilled work. Thus, an appropriate question is: To what extent and under what conditions an increase in household wealth can either decrease or increase child labor in poor households?
In a recent impact evaluation paper  with Norman V. Loayza  - which analyzes CCT programs implemented in Nicaragua - I find that transfers (CCT + small grants) had a selective impact on the volume and quality of child labor, reducing it in the aggregate and steering it towards skill-forming activities. Specifically, the program reduced child labor for household chores and farm work, while increasing it for the non-traditional, skill-forming activities related to commerce and retail.
The CCT+ program, conducted after the severe drought of 2005 for a period of one year, covered six municipalities in the northwest area of the country. All six municipalities were located in rural areas and were characterized for being extremely poor, even prior to experiencing the drought. The program benefited 3,000 randomly selected households, which were split into three groups of about 1,000 each, through a participatory lottery process. Also, 1,000 households were targeted but randomly selected not to receive the program (control group). Each group received a specific package; the first one received a traditional conditional cash transfer program where all households received cash transfers conditional on children attending school and health service regularly. The second group received the same as the first plus a scholarship for one member of the household (age 16 or above) to attend an occupational training course.The third group received the same as the first plus a small grant for the creation of a micro business or a new economic and productive activity. There were delays in the implementation of the scholarship for the occupational training course; as a result, the second package did not take place during the period of this evaluation, making the first and second packages the same in terms of the amount of transfers provided to households. The value of these cash transfers was substantial relative to the income of beneficiary households; depending on the package, the amount ranged from 25% to 45% of the average annual household income.
The randomized assignment of the distinct benefit packages and the random selection of the control group provided ex ante statistical equality between treated and control households. Such ex-ante equality allowed us to accurately estimate the impact of the program and make causal attributions of it on child labor outcomes. A simple theoretical model was also constructed to motivate the empirical exercise by exploring the child-labor decision-making process, relating it to child characteristics, potential occupations, and external interventions.
Analysis of the program showed an impact on child labor by reducing the total hours of work for children in the benefited households. Children in treated households did less chores and farm work but were engaged in more skilled labor than those in control households. However, in terms of gender, the program yielded differentiated results. Child-labor reducing impact of the program seemed to be greater for boys than for girls. In treated households, boys engaged in less farm work compared to girls, and girls saw an increase in their skilled labor work.
Finally, the source behind the increase in the better-quality type of child labor was not the traditional CCT component of the program but its small business-grant intervention.