The Impact of Conditional Cash Transfers on the Amount and Type of Child Labor

This paper analyzes the impact of conditional cash transfers on the amount and type of child labor in poor households. It first develops a simple theoretical model where child labor and training are chosen to maximize inter-temporal household income, given constraints to social, household, and child endowments. Then, it conducts an empirical analysis using the randomized trial data collected to evaluate the 2006 Nicaragua conditional cash transfer (CCT) program. This social program transferred wealth to poor families in rural areas of the country conditional on children’s school attendance and health check-ups. One-third of the beneficiaries received, in addition, a wealth transfer to begin a non-agricultural business. The paper finds that the CCT program had a selective impact on the volume and quality of child labor, reducing it in the aggregate and steering it toward skill-forming activities. Specifically, the program appears to have reduced child labor for household chores and traditional farming while increasing it for non-traditional activities related to commerce and retail. These require the child to develop basic skills in reading and writing, arithmetic, and interpersonal relationships. Moreover, the paper finds that the source behind the increase in the better-quality type of child labor is not the basic component of the program but distinctively its business-grant intervention.