Underaged child labor may be cheap for employers, but it is devastating for the estimated 160 million children globally who were in the workforce in 2020, half of those performing hazardous work. For the sake of cheaper goods for consumers and higher profits for companies, these children lose their childhoods, and a chance at an education that would improve their lifelong economic and health outcomes. Companies that recognize the high cost that child labor imposes on the children themselves can do something about it. 

Step one is following the law. There is a complex web of laws and regulations designed to protect child laborers. Nevertheless, one hundred and seven years after the U.S. Congress passed the first national child labor bill, an estimated one to two million children are still illegally employed in the U.S. alone. Fortunately, the U.S. does take action. In February of 2023, the U.S. Department of Labor fined a food sanitation contractor $1.5 million dollars for illegally employing minors within the United States. 

How is it that unlawful child labor persists despite decades of reform and legislation? An answer lies in the larger issue of endemic poverty. The truth is that, for many families, a child’s income serves as an economic lifeline. Because pockets or swaths of poverty exist around the world, including rich countries like the United States, child labor is also present around the world. In richer countries, illegally employed children may have limited working hours and attend school regularly. That is not true universally, however. The working conditions of child laborers worsens as we trace the supply chain to countries where raw materials originate. This upstream part of the supply chain is where the lines between child labor and modern slavery often blur.

In most industries, companies take responsibility for the status of child labor in their own operations, where the final product is assembled, processed, and sold to customers. The same companies also have purchasing contracts with their Tier 1 suppliers that may include specific prohibitions on the use of child labor, or more general requirements that Tier 1 suppliers comply with applicable laws (including child labor laws). Buyers are also most likely to audit the conduct of their Tier 1 suppliers because they know who they are, communicate with them regularly, and likely visit their sites. Tier 2 material-transformation sites are also relatively easy to identify and manage due to their connection to primary suppliers. 

The picture becomes more difficult with Tier 3 and 4 suppliers, and the people who supply them with laborers. Unicef calls these levels the “pinch points” of the supply chain. Here, we find practices on the ground that encourage the use of child labor. In some raw materials processing plants, like those in India’s cotton ginning industry, the wages of laboring children are managed by labor contractors, who settle payments with parents at the end of the season. Frequently, all connection to family protection is lost, and children are trafficked into bonded labor with no means of returning home. Therefore, for you as the buyer of goods to stop child exploitation you need a transparent view of your own operations, of your supply chain, and also of companies in adjacent industries, like labor providers.

IKEA is one company that has taken steps to decrease the risk of child exploitation at Tiers 3 and 4 of their supply chain. In 2013, IKEA and 135 other brands signed the “Company Pledge Against Forced Child and Adult Labor in Uzbek Cotton.” In this pledge, companies committed to not sourcing cotton from Uzbekistan until the country ceases the forced labor of children that are used to work the cotton fields. Byond making pledges, companies can also engage in direct collective action, collaborating with suppliers and their partners  to provide incentives to join initiatives on child labor. 

One problem that arises in managing the edges of the supply chain is that remote suppliers change frequently, and the choice of which companies to use in this layer usually falls to Tier 2 suppliers. For this reason, vertical integration can be a good step towards gaining more visibility and control over your supply chain. Companies that vertically integrate their supply chains have more direct oversight of their production processes, and are better positioned to enforce ethical labor practices.

Ultimately, ending underaged child labor requires change beyond the boundaries of your own business practices, like improving access to education and addressing poverty. One way to address the root causes of child labor exploitation is through corporate involvement with non-governmental organizations (NGOs) like the MV Foundation in Telangana, India, which has worked for two decades to ensure successful integration of child laborers into schools.

What can your business do to make sure the scourge of child labor is eradicated from your supply chain? Here are a few steps:

1. Know what the law requires in the places where you do business, and follow the law.
2. Consider increasing vertical integration so that you can directly oversee and manage labor practices within your organization.
3. Partner with governments, local communities, and NGOs to understand labor practices on the ground, to support families tempted to permit their children to work, and to encourage children to remain in school and at play.
4. Include contractual provisions requiring your supply chain partners not to use child labor, and remove those suppliers that are non-compliant.
5. Use technology to track and verify the absence of child labor in your supply chain.

If you are looking for an impetus to get started on this important ESG issue, review your legal, compliance, and contractual obligations. Are you at risk of violating the law or the terms of an agreement? Also, ask your stakeholders whether this issue matters to them. Is this an item on a potential investor’s checklist, that would disqualify you from consideration if you do not score well on this important ESG issue? How committed are your employees to working for an employer that actively works to eliminate child labor? Then, engage with the child laborers themselves. Get to know their stories. What is the reality of their lives, their health, their prospects? What can you do to improve their reality?

© 2023 Clear Strategy Co.