It’s a Hard-Knock Life: Child Labor Practices and Compliance with IMF Agreements

How does IMF lending impact child labor? We argue that, as compliance with IMF reforms increases, child labor increases. IMF loans can help governments avoid bankruptcy, prevent debt defaults, and credibly signal a commitment to pro-market reforms which should generate trade and investment. However, IMF policies associated with revenue and social policies can have negative impacts on child labor. Education reforms undermine the quality of schooling, making child labor more likely. Healthcare reforms undermine the quality of healthcare; when parents are ill or injured, their children are more likely to enter the workforce to make up for lost income. Similarly, social safety net reforms reduce the ability of families to access a safety net during times of hardship and make it more likely that children are pushed into the labor market to keep families afloat. To test our argument, we use a control function selection model on a sample of 70 IMF borrowers between 2002 and 2016. Using new datasets on IMF compliance and child labor, we find that increased compliance with IMF reforms worsens child labor practices. Revenue and social policy compliance in particular are associated with an increase in child labor.