The Economic Analysis of Social Labels

In this project, we develop a model of North-South trade to analyze the impact of a label certifying the absence of child labour in the export production of the South. When most eligible producers in the South can obtain the label, its impact is considerably reduced by a displacement effect whereby adult workers replace children in the export sector while children replace adults in the domestic sector. The label is then unable to create a price differential between goods produced under the label and those produced without it. When only a small fraction of eligible producers have access to the label, so that the South exports both labelled and unlabelled production to the North, labelled producers generally gain while those without a label generally loose from the introduction of the label. Ex ante welfare may thus fall in the South if the probability of getting a label when one qualifies is small. The impact on child labour is in general ambiguous, as the reaction of child labour to higher or lower adult and children wages depends on the strength of income and substitution effects.
In a related project, we investigate the impact of more general social labels, which guarantee better working conditions and higher pay to the workers involved in the production of the goods that are labeled. We analyze the conditions under which such labels can be effective, as well as the particular environments under which they can have undesirable side effects.