Child Labour in Indonesian Small Industries

Abstract

We analyse the geographic incidence of child labour in small manufacturing firms in Indonesia at the village level. Our unique data set covers virtually all Indonesian villages and urban neighbourhoods; it allows us to distinguish between demand and supply side determinants of child labour. We show by correcting for sample selection that a number of counterintuitive results – child labour being unaffected by credit access and school proximity – are the result of an interplay between supply and demand side determinants. Credit access and school proximity reduce child labour supply, but simultaneously constitute positive location factors for firms thereby increasing the demand for child labourers. To effectively reduce child labour, growth oriented policies, such as enhancing school and credit facilities, should be complemented by policies specifically geared towards increasing school attendance.