Why Children Work, Attend School, or Stay Idle: The Roles of Ability and Household Wealth

This paper offers a theoretical and empirical analysis of child labor, schooling, and idleness (neither work nor school), with particular emphasis on the roles of child ability and household wealth in determining these decisions. We show theoretically that “idleness” may be chosen optimally by low‐income households whose child is of low ability. Using a rich data set from the Philippines, we find that while other factors—including mother’s labor supply, the presence of a family business, and access to good school quality—contribute to these decisions, child ability and household wealth are the most important determinants of child idleness and the use of child labor. An implication of our findings is that any policy aiming to reduce child labor and increase child schooling should also target improvements in child ability and cognitive development through investments in the nutrition and health of poor children.