Exploitation, Altruism, and Social Welfare: An Economic Exploration

26 Pages·2013·0.13 MB·English

by  Matthias Doepke

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IZA DP No. 7449
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E Exploitation, Altruism, and Social Welfare:
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An Economic Exploration
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N Matthias Doepke
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I June 2013
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Forschungsinstitut
zur Zukunft der Arbeit
Institute for the Study
of Labor
Exploitation, Altruism, and Social Welfare:
An Economic Exploration

Matthias Doepke
Northwestern University
and IZA

Discussion Paper No. 7449
June 2013

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IZA Discussion Paper No. 7449
June 2013

ABSTRACT

Exploitation, Altruism, and Social Welfare:
*
An Economic Exploration

Child labor is often condemned as a form of exploitation. I explore how the notion of
exploitation, as used in everyday language, can be made precise in economic models of child
labor. Exploitation is defined relative to a specific social welfare function. I first show that
under the standard dynastic social welfare function, which is commonly applied to
intergenerational models, child labor is never exploitative. In contrast, under an inclusive
welfare function, which places additional weight on the welfare of children, child labor is
always exploitative. Neither welfare function captures the more gradual distinctions that
common usage of the term exploitation allows. I resolve this conflict by introducing a welfare
function with minimum altruism, in which child labor in a given family is judged relative to a
specific social standard. Under this criterion, child labor is exploitative only in families where
the parent (or guardian) displays insufficient altruism towards the child. I argue that this
welfare function best captures the conventional concept of exploitation and has useful
properties for informing political choices regarding child labor.

JEL Classification: D63, D64, J10, J47, J80

Keywords: child labor, exploitation, social welfare function, altruism

Corresponding author:

Matthias Doepke
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
USA
E-mail: [email protected]

* I thank David de la Croix, Steven Durlauf, Ruben Gaetani, Jack Knight, Sebastian Kohls, Andreas
Kropf, Veronika Selezneva, and participants at the 2012 PPE Conference “On Exploitation” in New
Orleans for comments that helped to substantially improve the paper. Financial support from the
National Science Foundation (grant SES-0820409) is gratefully acknowledged.
1 Introduction
In both popular and scientific writing, child labor is frequently portrayed as a
form of exploitation of children.1 Indeed, searching for [“child labor” and “ex-
ploitation”] on Google Scholar yields about 22,000 hits in June 2013.2 Yet within
the context of economic models of child labor, there is usually no clearly de-
fined notion of exploitation. To be sure, the literature has identified a number of
conditions under which some restrictions of child labor may be desirable. How-
ever, these arguments are based on standard efficiency grounds (generated by,
for example, human capital externalities) and are not linked to the concept of
exploitation.3
In this paper, I explore how exploitation can be defined in the context of an eco-
nomic model in a way that rhymes with the conventional understanding of the
term. Thatis,Iamtakingseriouslythemoralintuitionsthatliebehindtheusage
of “exploitation” in common language, and aim to translate these intuitions into
the language of welfare economics. Central to this undertaking is to develop a
welfarecriterionthatcanbeusedtodecidewhichformsofchildlaboramountto
exploitation,andwhichdonot.
To see why this is not a trivial undertaking, consider the standard welfare con-
cept used in dynamic economic models. Since the seminal work of Barro (1974)
and Barro and Becker (1988, 1989), it has been standard practice to treat altruis-
tically linked dynasties in a way that is analogous to a single agent who has an
infinite lifespan.4 In the case of a single agent who lives forever, the natural wel-
fare concept is the initial lifetime utility of the agent. If there are multiple such
agents,thewelfarecriterionisa(possiblyweighted)sumoflifetimeutilities. Ap-
plyingthesameconcepttoaworldofdynasties,awelfarecriterionemergesthat
1Childlaborisstillcommonindevelopingcountries. AccordingtotheInternationalLabour
Organisation,therewere215millionworkingchildrenin2008.
2Examples from the literature in economics include Horrell and Humphries (1995) and
Holleran(1995).
3See for example the discussions in Baland and Robinson (2000) and Doepke and Krueger
(2006).
4SeedelaCroixandMichel(2002),Chapter5,foramoreextensivediscussionofthemodeling
ofaltruisminmacroeconomicmodels.
1
evaluates the welfare of the entire dynasty through the utility of the head of the
dynasty. Future members of a dynasty only enter consideration insofar as the
initial member of the dynasty is altruistic towards them, i.e., their utility enters
theutilityofthedynastyhead.
Defining a dynastic utility criterion in this way has practical advantages. Stan-
dard results from dynamic economics carry over to the dynastic setting, imply-
ing, for example, that in the absence of externalities and with complete markets
competitiveequilibriaareefficient.
However, using the standard dynastic welfare criterion also makes it impossi-
ble to second-guess whether parents make the “right” choices for their children.
The implicit social welfare function accepts the revealed preference of parents
for their children, and does not attach any importance to the children other than
through the altruism that their parents feel for them. This limitation of standard
dynastic welfare explains why it is difficult to speak of exploitation of children
inthisclassofeconomicmodels. Whenwefeelthatchildrenarebeingexploited,
implicitlywearesayingthattheirparents(or,moregenerally,guardians)arenot
taking sufficient care of them. Yet such a judgement cannot be expressed when
a welfare criterion is used that assumes from the outset that the parents care just
the right amount. Hence, the standard dynastic social welfare function renders
theconceptofexploitationvacuous.
Theaimofthispaperistoaddressthemismatchbetweentherhetoricofexploita-
tion and the welfare criteria that are usually applied to economic models. To do
this, I propose alternative welfare criteria that can be used to give the term ex-
ploitation a more precise meaning within an economic model of child labor, and
then connect this discussion to arguments for and against regulation of child la-
bor. Based on the common-language understanding of exploitation, for the pur-
posesofthispaperwewillsaythatpeoplearebeingexploitediftheyareunfairly
used for the benefit of others.5 In the case of child labor, the “being used for the
benefit of others” condition will usually be satisfied, because it is generally par-
ents(orotherguardians)whomakedecisionsonchildlaborandstandtobenefit
5Ofcourse,otherdefinitionsofexploitationarepossible. ForaMarxianperspective,seeRoe-
mer(1985).
2
fromtheincome. Thequestion,then,iswhetherthisuseofthechildisunfair.
Anumberofdifferentnotionsoffairnesshavebeenproposedbywritersinethics
and political philosophy. My objective here is to stay as close as possible to con-
ventional concepts of social welfare in economic models, while also arriving at
a formulation that gives meaning to the term exploitation. The notion of fair-
nesswillthereforebe basedonsocialwelfarefunctionsthatareultimatelybased
on individual preferences.6 In addition, a criterion is desired under which the
question of whether child labor amounts to exploitation does not have an abso-
lute answer, but rather depends on specific circumstances. This will reconcile,
through the lens of the formal criterion, the common intuition that, for example,
extremeformsofchildlaborsuchasprostitutionconstituteexploitation,whereas
activities such as helping out on the family farm are more benign. In evaluating
differentsocialwelfarefunctions,Iwillbelookingforcriteriawheresuchgradual
judgementsarepossible.
To find a notion of fairness that meets these objectives, it is essential to allow a
distinction between parental altruism and the “social” altruism that is used to
define exploitation. In particular, the basic idea of the welfare criteria proposed
hereistoallowforsocialwelfarefunctionsthatmaygivemore(orless)weightto
children than the weight implicit in their parents’ altruism. Whether child labor
amountstoexploitationthendependsonthedegreeofparentalaltruism. Indeed,
if a parent had no regard whatsoever for the welfare of the child, child labor
wouldbeakintoslavery,andpresumablyslaveryshouldamounttoexploitation
under any definition. Conversely, if a parent had complete disregard for his or
her own utility and was solely motivated by maximizing the child’s happiness,
child labor would only occur to benefit the child, and thus should not constitute
exploitation. Unlike the standard dynastic social welfare function, the preferred
socialwelfarefunctiondevelopedhereleadstothesameconclusions.
In the following section, I outline a basic model of child labor that will provide
the framework for the analysis. Section 3 contains the core of the analysis and
outlines how exploitation does or does not arise from the perspective of alterna-
6Thus, I follow the utilitarian approach to social welfare, as discussed, for example, by Sen
(1979).
3
tivecriteriaforjudgingsocialwelfare. Section4concludes.
2 A Simple Model of Child Labor and Altruism
While the arguments below should be applicable to a wide class of economic
models, it is useful to develop the main ideas in a specific setting. The key fea-
turesoftheenvironmentconsideredherearethatthereareparentsandchildren;
parents decide on child labor; and parents are altruistic towards their children.
To simplify the analysis, the main ideas are developed in a static setting with a
singlegenerationofparentsandchildren.7 Adynamicextensionisconsideredin
Section3.6below.
2.1 Economic Environment
We envision an economy populated by a finite number of adults, indexed by i,
who are characterized by their human capital h > 0 and a preference parameter
i
z , where 0 ≤ z ≤ 1. Each adult has exactly one child. The preference parameter
i i
z represents altruism, i.e., the relative weight of the child’s utility in the utility
i
function of the parent. There may be variation in the degree of altruism among
the parents. The parent’s lifetime utility V as a function of human capital h is
P;i i
givenby:
V (h ) = (1−z )u(c (h ;l ))+z V (h ): (1)
P;i i i P i i i C C
Herec (h ;l )istheparent’sconsumption(whichdependsonhumancapitaland
P i i
the supply of child labor) and V is the child’s utility (as an adult). The parent
C
worksfulltime,andchoosesthechild’slaborsupplyl . Theremainingtime1−l
i i
servestoraisethechild’shumancapital. Thechild’shumancapitalisgivenby:
h = e(1−l ): (2)
C i
7Foranoverviewoftheeconomicliteratureonchildlabor,seetheseminalpaperbyBasuand
Van (1998) and the surveys by Basu (1999) and Edmonds (2008). The dynastic model of child
labordevelopedhereisbasedonthemacroeconomicmodelsofDoepke(2004)andDoepkeand
Krueger(2006).
4
Wecanthinkofeasaproductionfunctionforhumancapital. Oneinterpretation
is that 1 − l is time that children spend in school and that therefore raises their
i
human capital. However, wider interpretations are also possible; for example,
onecomponentofhumancapitalishealth,andemightrepresentthedetrimental
effectsofchildlaboronfuturehealth. Thechild’spreferencesaregivenby:
V (h) = u(c (h)): (3)
C C
Of course, in a dynamic dynastic setting the child’s utility would have the same
functionalformasthatoftheparent,withanadditionaltermfortheutilityofthe
grandchildren.
Forillustration,Iwilladoptparticularfunctionalforms. Parentalconsumptionis
givenby:
c = h+l: (4)
P
Thatis,thewageisequaltooneperunitofhumancapital,andchildren’shuman
capital is normalized to one. Alternatively, we can abstract from labor markets
altogether and interpret (4) as a linear production function that is available to
eachhousehold.
Theproductionfunctionforeducationisassumedtobelinear:
e(1−l) = 1−l: (5)
Giventhattherearenograndchildren,thechildren’sconsumptionisgivenby:
c = h = 1−l: (6)
C C
Wealsoassumethattheutilityfunctionislogarithmic:
u (c) = ln(c): (7)
i
5
2.2 Unconstrained Equilibrium
We can now characterize the outcome in this economy if parents are uncon-
strainedinthechoiceoftheirchild’slaborsupply.
Proposition1(UnconstrainedEquilibrium) Intheunconstrainedequilibrium,par-
entschoosethefollowingchildlaborsupplyl :
i
l = max{1−z (1+h );0}
i i i
Proof: Theparent’soptimizationproblemis:
max {(1−z )ln(h +l )+z ln(1−l )}:
i i i i i
0(cid:20)li(cid:20)1
Thefirst-orderconditionforaninterioroptimumis:
1−z z
i i
= ;
h +l 1−l
i i i
whichyields:
l = 1−z (1+h ):
i i i
This condition together with the non-negativity constraint on l gives the result.
i
2
Asintuitionsuggests,aparentthatisentirelyselfish(z = 0)willalwayssetchild
i
labortothemaximumlevel,l = 1. Altruisticparentswillleaveatleastsometime
i
for their child’s education, l < 1, and the more so the higher their own human
i
capitalh is.
i
3 Exploitation and Social Welfare
3.1 Defining Exploitation Relative to a Social Welfare Function
Having described the unconstrained outcome in the economy, I now would like
to consider ethical criteria for evaluating the equilibrium allocation. Is it appro-
6
priate to say that children are being exploited in this world? For the purposes
of the discussion, we will say that people are being exploited if they are unfairly
usedforthebenefitofothers. Inthespecificcaseofalaborrelationship,exploita-
tion happens if one person forces another to work without adequate compensa-
tion.
At first sight, it may then appear that in our model child labor amounts to ex-
ploitation by definition, given that one economic agent (the parent) imposes a
work requirement on the other (the child), and no formal compensation is pro-
vided. But this does not rhyme with common sense: the parent does care about
the child after all, and if z is close to one, the parent would be willing to endure
great suffering for the welfare of the child. It would be difficult to argue that a
small amount of child labor that helps to provide subsistence income to the par-
ent represents exploitation. It is true that in the model the child does not receive
formal compensation for the labor. However, it is also true that the parent pre-
sumably incurred expenses and effort in raising the child (which is implicit in
the adult budget constraint), and child labor could be viewed as compensation
forsuchefforts.
Given these arguments, it appears that the question of whether child labor is
exploitationisnotaneither-orquestion;rather,theanswershoulddependonthe
degreeofaltruismz. Arelationshipwhereoneagentcontrolsthelaborsupplyof
theothermaystillnotrepresentexploitationaslongasthecontrollingagentcares
sufficientlyaboutthecontrolledagent. Ofcourse,what“sufficiently”meanshere
dependsonthemeaningof“fairness”inthedefinitionofexploitation.
As outlined in the introduction, the position adopted here is that “exploitation”
needs to be judged relative to some social welfare function. For a given social
welfarefunction,Idefineexploitationasfollows:
Definition1(Exploitation) For a given social welfare function, child labor is consid-
eredexploitationifthefollowingconditionsaresatisfied:
1. Aachildisrequiredtoworkmorethanwhatthesocialwelfarefunctionprescribes.
2. Theadditionalworkbenefitstheparentrelativetothesocialoptimum.
7