Guaranteed Manufactured without Child Labor: The Economics of Consumer Boycotts, Social Labeling and Trade Sanctions

Does labeling products “Child‐Labor Free” provide a market‐based solution to the pervasive employment of child labor? This paper explores the promise of social labeling in the context of its four oft‐noted objectives: child labor employment, consumer information, welfare, and trade linkages, when competition between the North and South is based both on comparative cost advantage, and the use of child labor as a hidden product attribute. We show that (i) social labeling benefits consumers and Southern producers, whereas children and Northern producers are worse off; (ii) trade sanctions on unlabeled products deteriorates Southern terms of trade, but leaves the incidence of child labor strictly unaffected; and (iii) a threat to sanction imports of unlabeled Southern products discourages the South from maintaining a credible social labeling program. We also explore the question of whether social labeling should be viewed as a transitory or a permanent institution in developing economies.