UN estimate that 20 million are held in bonded labor. Several economic analyses assert that bonded laborers accept these contracts voluntarily, which could imply that a ban would make such laborers worse off. We question the voluntariness of bonded labor, and present a mechanism that keeps workers trapped. With different types of landlords not revealed to the laborer, we show how some landlords manipulate contract terms so that the laborer becomes bonded. Enforcement mechanisms and the monopolistic market for credit thus play a joint role. Providing alternative sources of credit, offer proper conflict resolution institutions over labor-contract disputes and banning could emancipate bonded labor, which would make them better off.

Bonded Labor in Nepal

Dec 2004 - Dec 2006