Human Capital Investment in the Presence of Child Labor

Abstract

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. These effects persist and are intergenerational, affecting adult household consumption, and lead to a divergence in the next generations' educational outcomes. Our results are robust to instrumenting for child labor prevalence with crop-mix and to the inclusion of a rich set of district-level characteristics. We provide evidence that reductions in educational investment in response to positive early life shocks are total welfare-reducing.