Recently we have seen the introduction of a bill that aims to establish a comprehensive legal framework to address modern slavery. The bill is backed by both National and Labour. Businesses with revenue exceeding NZD 100 million are required to “report on how they identify, address, mitigate and remediate incidents of modern slavery …within their operations and supply chains.” The bill “creates offenses for failing to meet the reporting requirements”.
Many commentators have focused on the additional compliance costs created by this law. Modern supply chains are complex and transnational. Identifying the presence of forced labour in some part of that supply chain is virtually impossible.
But more importantly laws banning particular practices are often not effective in achieving those goals and in some cases, as I argue below, may be counterproductive. . As the former World Bank Chief Economist Kaushik Basu points out, this is an area where “…prescription has outstripped analysis by a wide margin.”
Problems in defining modern slavery
There are multiple different definitions of modern slavery from bodies such as the UN’s International Labour Organization. These definitions are expansive and many existing work situations in developing countries will satisfy them. Some practices are clearly illegal, and most countries have existing laws to deal with these, with varying degrees of compliance.
But other practices are less clear-cut. Consider the work conditions of Indian migrants who (often) take up menial jobs in the Middle East. They have long been subject to the “kafala system” where they are sponsored by and tied to an employer. Changing jobs or even leaving the job (or the country) can only be achieved with the employer’s consent. This certainly qualifies as “forced” labour. (Recently, some countries like Saudi Arabia have moved to eliminate this system. But these initiatives seem motivated more by the fact that the kafala system makes it difficult to attract high quality workers.)
While we may deplore the existence of such systems, the key question remains: why do people willingly sign up for these jobs? It is certainly not the case that people are unaware of the pitfalls. News about worker exploitation under the kafala system is widespread in Indian newspapers. The reason people sign up for these terrible jobs is that, although hard to imagine in the West, the alternatives are often far worse.
Child labour as modern slavery
A key category in the definitions of modern slavery is the existence of child labour. While avaricious businesses may well want to exploit the labour of children, parents do not. The only reason some parents send their kids to work rather than to school is that this is the only way they can guarantee a subsistence level of income. Note that those who are relatively well-off even in poor countries do not send their kids to work. Clearly children are forced to work when parents do not make enough.
Economist Kaushik Basu notes that, according to the 1851 census, in England and Wales about 37% boys aged ten to fourteen and 20% percent of girls in the same age-group were working. These high rates of child labour existed despite the main Factories Acts (of 1833 and 1844), which placed curbs on child labour.
What led to the disappearance of child labour was not the Factories Act but the general increase in the standards of living and higher adult wages.
An extensive body of research finds that laws aimed at curbing child labour have often resulted in higher child labour.
The intuition is not hard to understand. Fines for non-compliance with child labour laws adds to business costs, which often results in lowering adult wages. If those wages drop low enough this creates scope for child labour. For instance, if and when international trade agreements prevent children from working in Bangladeshi garment factories, the children of the needy do not stop working; they go on to more precarious work.
The World Bank recently disseminated a study by a group of American researchers looks at the impact of regional trade agreements (RTAs) on child labour. They find that RTAs that do not include any child labour protections leads to a decline of child labour, especially for 14 to 17-year-olds with corresponding increases in school enrolment rates. This is because RTAs, by opening up trade, lead to improvements in standards of living. However, trade agreements that include provisions banning child labour, actually increase child employment for both young children (under 14 years of age) and, especially, 14 to 17- year-olds. And there is a corresponding decrease in school enrolment for those age groups.
Proponents of such laws mean well. But, in my view, many policy makers in rich nations have little understanding of working conditions in poor countries or how humans respond to incentives. The road to hell is paved with good intentions.
There are certainly ways of reducing child labour in the affected countries such as mandating and enforcing minimum wage laws or subsiding schooling but trading partners passing laws banning this is hardly effective.