Human Capital Investment in the Presence of Child Labor

68 Pages Posted: 26 May 2020

See all articles by Natalie Bau

Natalie Bau

University of California, Los Angeles (UCLA)

Martin Rotemberg

New York University (NYU)

Manisha Shah

UCLA Department of Public Policy; NBER

Bryce Steinberg

Brown University

Date Written: May 2020


Policies that improve early life human capital are a promising tool to alter disadvantaged children's lifelong trajectories. Yet, in many low-income countries, children and their parents face tradeoffs between schooling and productive work. If there are positive returns to human capital in child labor, then children who receive greater early life investments may attend less school. Exploiting early life rainfall shocks in India as a source of exogenous variation in early life investment, we show that increased early life investment reduces schooling in districts with high child labor, especially for girls and lower castes. These effects persist and are intergenerational, affecting fertility, per capita household consumption, and other measures of household poverty, and lead to a divergence in the next generations' educational outcomes. Our results are robust to the inclusion of rich controls for district-level characteristics and an IV strategy. We provide evidence that reductions in educational investment in response to positive early life shocks are inefficient.

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Suggested Citation

Bau, Natalie and Rotemberg, Martin and Shah, Manisha and Steinberg, Bryce, Human Capital Investment in the Presence of Child Labor (May 2020). NBER Working Paper No. w27241, Available at SSRN:

Natalie Bau (Contact Author)

University of California, Los Angeles (UCLA) ( email )

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Martin Rotemberg

New York University (NYU) ( email )

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Manisha Shah

UCLA Department of Public Policy ( email )

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Bryce Steinberg

Brown University ( email )

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