Asia Pacific Educ. Rev.
(2016) 17:391–401
DOI 10.1007/s12564-016-9436-7
Conditional cash transfer against child labor: Indonesia Program
Keluarga Harapan
Kye Woo Lee1 • Miae Hwang2
Received: 22 January 2016 / Revised: 25 April 2016 / Accepted: 10 May 2016 / Published online: 28 June 2016
Ó Education Research Institute, Seoul National University, Seoul, Korea 2016
Abstract This study aims to analyze whether subsidies
provided by the Indonesian conditional cash transfer
against child labor program (Program Keluarga Harapan:
PKH) were sufficient for children to stop working and go
back to schooling. Ex-post evaluations of the program
found that it did not improve children’s enrollment rate and
reduce child labor significantly. To search out reasons, this
study analyzed the financial returns, on the short-, medium-
, and long-term bases, of the children who attend school by
participating in the program, in comparison with those
children who did not attend school. The data for the
analysis were obtained from the Indonesia Family Life
Survey data from the RAND Corporation and Indonesian
government statistical data. The results demonstrated that
the financial returns to children joining PKH to attend
primary school were lower than those of their non-partic-
ipating counterpart in the short and medium terms. Only in
the long term, the financial returns to most program par-
ticipants were greater than those of non-participating
counterparts. The subsidy was too low and short to make
children attend school, driving children to workplaces.
Therefore, this study recommends that the government
extend the subsidy period and sensitize poor family par-
ents, or reduce their burden of educational expenditures by
awarding them scholarships for their children’s education,
or combine both policy actions.
& Kye Woo Lee
kwlee@kdischool.ac.kr
1
KDI School of Public Policy and Management, 263
Namsejong-ro, Sejong City 30149, Korea
2
Korea Energy Economics Institute, 405-11 Jongga-ro,
Jung-gu, Ulsan 681-300, Korea
Keywords Child labor
Conditional cash transfer

Indonesia
Evaluation
Financial analysis
Net present
value
Introduction
The purpose of this study is to find out why Indonesian
conditional cash transfer against child labor program, Pro-
gram Keluarga Harapan, failed to reduce child labor (as
elaborated later in the Literature review section) and to
suggest some policy options to attain the program objectives.
Generally, conditional cash transfer is one of the policy
options to deal with the child labor issue. By adopting this
policy, the government or other public agency provides
cash to a household when a family has school-age children.
The assumption behind this policy is that increasing school
enrollment of children would lead to a decrease in child
labor since children cannot work while they are studying at
school. The Indonesian government also implemented a
conditional cash transfer program against child labor,
called Program Keluarga Harapan (PKH).
However, past evaluation papers such as Main Findings
from the Impact Evaluation of Indonesia’s Pilot Household
Conditional Cash Transfer Program, written by Alatas in
2011, stated that the program did not improve very poor
household children’s school enrollment and did not reduce
their waged labor significantly (as elaborated further in the
Literature review section). At 95 %, the elementary school
enrollment rate in Indonesia was already high, but it did not
lead to a meaningful decrease in children’s waged working
hours since school dropout rates were high. About 20 % of
students in Indonesia dropped out from primary or junior
high school, and they were estimated at 750,000 children in
2010 (Tifa 2011).
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Considering human rights and economic development,
dealing with the child labor problem is important. First,
child labor causes children’s health problems. It is note-
worthy to mention that Indonesian children still work in
hazardous conditions and unsafe environments where ele-
ments like inflammable and gaseous gear, toxic chemicals,
dangerous heights, and perilous machinery and equipment
severely threaten children’s lives (Aldobrandini 2012).
Without a doubt, eradicating child labor, especially the
worst form of child labor in Indonesia, is a truly global and
important issue.
Second, child labor disturbs economic development in the
long term. The accumulation of human capital is a key factor
of economic development in the long run. In particular,
education and health investment for human capital accu-
mulation is important since it has a positive relationship with
productivity (Galli 2001). However, children cannot be
educated because of the work they are required to do. The
working hours of children in Indonesia are above the inter-
national norm of 3 h on school days and 8 h on non-school
day, which means that they have no enough time to devote to
schooling. Even though they can enroll in schools, they do
not have a sufficient amount of time to do homework or the
physical strength to simultaneously perform study and work.
This unfortunate phenomenon can cause low productivity
and can negatively affect the domestic economy in the long
term. Therefore, eradicating child labor is crucial for per-
sonal and national development.
To eradicate child labor, it is necessary to find why
children keep working. Many literature reviews mentioned
that main reasons for child labor were related to economic
problems. Therefore, this study also assumes that condi-
tional cash transfer amount is insufficient for meeting
children’s living standards and expenditures, so they decide
to work instead of participating in PKH and attending
school. To examine the validity of such an argument, this
study will test two hypotheses, (1) net revenue of children
participating in the program is lower than that of non-
participating children; and (2) the net present value (NPV),
i.e., the present value of net benefit, of participating in the
program is lower than the NPV of not participating in the
program. For analysis, this study will use program’s sub-
sidy (cash transfer), children’s current average wage
income, education expenditure, and expected average wage
income over the lifetime, depending on the educational
attainment level. Our empirical test results confirm the both
hypotheses, and therefore, we can conclude that one of the
important reasons for the PKH’s failure in eradicating child
labor is the insufficient level of the conditional cash
transfer amount (i.e., the program subsidy) to the program
participants.
This paper is composed of five chapters. In the next
chapter, a literature review on Indonesian child labor and
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K. W. Lee, M. Hwang
effects of conditional cash transfers will be conducted. In
section 3, the methodology and data used for the hypoth-
esis test will be discussed, followed by section 4, which
will show the analysis results. Section 5 will cover con-
clusions and recommendations.
Literature review
Before making the hypotheses tests, a short introduction of
the conditional cash transfer program in Indonesia, Pro-
gram Keluarga Harapan (PKH), is made, followed by a
short review of the child labor situation in Indonesia and
the effects of conditional cash transfer programs for child
education and against child labor will be made.
Program Keluarga Harapan
Program Keluarga Harapan started implementation from
2007 in five provinces; DKI Jakarta, West Java, East Java,
NTT, and Gorontalo. By 2012, it was expanded to 25 out of
33 provinces with 118 districts targeted, and about 778,000
households participated in the program led by the Ministry
of Social Affairs (Kemensos).
Like other cash transfer programs, Program Keluarga
Harapan (PKH), aims to mitigate household poverty in the
short term while improving human capital investment by
increasing school enrollment and enhancing health condi-
tions of children and pregnant women in the long term. The
provision of subsidies for 4 years in principle is conditional
on the fulfillment of the following conditions: for pregnant
women, they must take iron supplements and visit an office
for postnatal care; for children aged \6 years, they must
complete immunization and regularly receive health
checkups; and for children aged 6–15 years, they must
achieve 85 % school attendance. The amount of subsidy is
IDR 800,000 per year for children aged \6 years and
pregnant women. Primary school students (aged 7–12)
receive IDR 600,000 per year, while IDR 1,000,000 per
year is provided for secondary school students (age 13–15).
Since the fixed basic transfer is IDR 200,000, the remain-
ing amount of transfer varies, depending on the age joining
the program. The government limited the maximum
transfer to IDR 2,200,000, regardless of the number of
children per household.
Indonesian Child Labor
The Child Labor Act 1986 in Indonesia defines child labor
as work of children whose ages are under 14 years. UNI-
CEF defines ‘‘A child is considered to be involved in child
labor activities under the following classification: (a) chil-
dren under 11 years of age that during the week preceding
Conditional cash transfer against child labor: Indonesia Program Keluarga Harapan
the survey did at least 1 h of economic activity or at least
28 h of domestic work, and (b) children 12–14 years of age
that during the week preceding the survey did at least 14 h
of economic activity or at least 42 h of economic activity
and domestic work combined’’ (Unicef 2015). ILO defines
‘‘Child labor as work that deprives children of their
childhood, their potential and their dignity, and that is
harmful to their physical and mental development’’ (ILO
2015). In this paper, child labor will be defined as children
whose ages are between 7 and 15 years working more than
1 h per week, since in Indonesia all children are required to
attend school and complete the junior secondary schooling.
Child labor in Indonesia is as serious as in many other
developing countries. According to Aldobrandini (2012),
Indonesian children who work, irrespective of the kinds of
tasks they perform, were estimated at 6.7 % of the child
population, or 2.3 million children in 2009. The main
reason for child labor is based on the economic situation.
Children’s income, which is typically crucial for household
survival, gives way to the increasing supply of child labor
(Kis-Katos and Schulze 2011; Priyambada et al. 2005,
Amin et al. 2004). Income shock and unemployment of
adults also increase the demand for child labor since child
work could make up for the loss from income shock.
Similarly, unemployment of adults and the supply of child
labor have a positive relationship. Children are increasingly
expected to work when one of the adults in the family loses
his or her job, or does not have the opportunity to work.
Similarly, Ranjan’s (1999) study supports this idea in
another way. He found that formal credit markets, espe-
cially long-term credit markets, are desperately needed to
make children go to school. For the poor, a loan is the
easiest way to acquire assets. Unfortunately, it is difficult
for the impoverished to have that opportunity since there is
nothing that guarantees their credit. Therefore, they send
their children not to school, but to work.
Central Board of Statistics (BPS) and ILO-IPEC (2010)
mentioned that about 57.2 % of working children aged
between 5 and 17 are employed in agriculture, forestry,
hunting, and fishery. In the agriculture sector, children
especially work at plantations where they produce rubber,
palm oil, and tobacco. Such occupations are hazardous to
children since there are many factors that may possibly
harm the children. Also, working affects the children’s
education.
Child labor in general induces children to quit their
schooling (Angrist and Lavy 2009; Fiszbein et al. 2009;
Hanushek et al. 2006; Glewwe and Kremer 2006). They
found that when children’s income, which can be under-
stood as an opportunity cost to children in school, rises, the
school dropout rates also increase. Since older children and
boys tend to get higher salaries, the school dropout rates of
boys and children aged 11–13 is also higher. Even though
393
working children succeed in continuing their schooling,
Aldobrandini (2012) showed that working children in
Indonesia are less likely to attend school than non-working
children, and, needless to say, working hours and school
attendance had a strong and negative relationship. Con-
sidering that the average working hours of children is about
24.2 h in a week, working children have less time to study,
so their highest education level attained is lower than non-
working children, and they therefore typically drop out of
school (Aldobrandini 2012).
To deal with the problem, the Indonesian government
tried to increase school enrollment and reduce child labor
by supporting poor households through many programs
(Table 1).
Effects of conditional cash transfer programs
The Conditional Cash Transfer program (CCT) is a pro-
gram offering cash to poor families, and it comes to the
fore as one of the effective ways for eradicating child labor.
Originally, CCT was designed to increase children’s school
enrollment (attendance) and to enhance household mem-
bers’ health by muting household poverty. CCT usually
requires family members to go to health centers for regular
health checkups and children to go to school with at least
85 % attendance. Filmer and Schady (2009) mentioned that
about 29 countries including Brazil, Mexico, Cambodia,
and Ecuador have implemented CCT.
The literature shows that the impact of CCT is sub-
stantial. For example, a study by Filmer and Schady (2011)
on Cambodia’s CCT program called CESSP Scholarship
Program (CSP) demonstrates a positive relationship
between CCT and school enrollment. The program dis-
tributed $45 per year to each household, which is equal to 2
or 3 % of household expenditure. The improvement in
school dropout rates was about 25 % compared to the non-
beneficiaries whose school completion rate was only 44 %.
Oportunidades (the CCT program in Mexico) showed
similar outcomes. Households enrolled in the program
received subsidies depending on the number of children,
and not surprisingly, results in children education were
significant. The outcome was notable at entry into sec-
ondary school. Without the program, just 36 % of students
enrolled in secondary school; but with the program, this
figure increased to 76 % (de Janvry et al. 2006; Rawlings
and Rubio 2003; de Janvry and Sadoulet 2004).
Additionally, CCT reduces child labor as an indirect
benefit. Increasing school enrollment implies that children
who work or do nothing start going to school. For working
children, the time for working is replaced by time spent in
school, so it obviously reduces child labor. Jones and
Marquez (2014), Fernandez and Saldarriaga (2014), and
Perova and Vakis (2009) illustrate that CCT shrinks child
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394
labor. In Peru, the Juntos (which means ‘‘together’’) Pro-
gram was implemented, and its influence extended to paid
and unpaid working children. Once per 2 months, a treat-
ment group received 200 Soles ($63), and the result cal-
culated from Young Lives data in 2009 showed that the
paid working children in a beneficiary group were ten times
fewer than those in a non-beneficiary group. Dearden et al.
(2009) also proved the positive relationship between CCT
and child labor. Unlike the Juntos Program, Education
Maintenance Allowance in the UK reduced child labor by
preventing inactive children from becoming workers. The
program transferred subsidies corresponding to 12 % of
household income to families earning \£13,000. The
scholarship value enlarged full-time students by 6.7 %
point.
However, in some cases, it appears that the poorest
household children do not follow the general outcome. Even
though they could get the subsidy by going to school and get
more labor earnings in the future, they chose working instead
of studying. Mo et al. (2013) illustrated this phenomenon
with a randomized controlled trial (RCT) done in China. The
project randomly selected people in a village and gave them
500 RMB per year. Contrary to a control group which had
13.3 % working children, the treatment group had only
5.3 % working children, showing an 8 % points difference.
However, it was not significant among the poorest children
group. The study found that they were usually working at off-
farm jobs and earned 100 RMB per month. To them, par-
ticipating in that program causes damages to their household
economy. Edmonds and Shrestha (2014) focused on chil-
dren’s opportunity cost, showing the Nepal CCT Program
case. They argued that even though it reduced working girls
in weaving by 75 % and prevented them from failing school
exams by 66 %, the researchers could not find positive net
returns to education, stressing that foregone child labor
earnings should have been considered.
In order to evaluate the CCT program (PKH) in
Indonesia, the World Bank in 2011, 4 years after the ini-
tiation of PKH, assessed some performance indicators,
such as poverty level of beneficiaries, child malnutrition
level, consumption of high-energy and high-protein food,
average education attainment level, attendance rate of
children, the number of children’s working hours, and the
rate of children’s work participation (Alatas et al. 2011).
Surprisingly, most of the indicators improved from the
baseline. However, the number of working hours and the
rate of work participation indicated that the program did
not mitigate child labor. Even though the result indicated
an improvement, the degree of improvement was too low at
only two percent (World Bank 2012).
The assessments also illustrated that PKH not always
affected all households equally. For the poorest household
children, subsidy for the participation in the CCT program
123
K. W. Lee, M. Hwang
does not cover schooling expenditures, so school-age
children tend not to go to school, but to work. This phe-
nomenon can be one of the reasons for the failing CCT in
Indonesia. Even though many evaluation studies on the
Indonesia CCT program, Program Keluarga Harapan
(PKH), showed the impact of the program, they did not
mention about the opportunity cost of participating in the
program. Nazara and Rahayu (2013) also just mentioned
that the inappropriate time of disbursing subsidy might
have failed to increase school enrollment in secondary
school and reducing working children in that age group.
Therefore, this paper will examine whether financial
transfer flows of PKH cover living expenses and educa-
tional expenditures of program participants to compensate
for their loss of working wage earnings in the short term.
Also, this study will check whether the net present value
(NPV) of participating in the program is higher than the
NPV of not participating in the program in the long run.
The next chapter will introduce what methodology and data
will be used for the test of these hypotheses.
Methodology and data
The literature review has pointed out that high opportunity
cost is one of the important barriers to participating in the
CCT program, and the ineffective results of PKH on edu-
cation and child labor may also have been caused by high
opportunity costs of participating in the PKH and attending
school. Children who do not participate in the PKH pro-
gram may believe that working continuously will probably
give a higher revenue and net financial return than
attending school. To verify such assumptions, this study
will examine whether or not participating in PKH incurs
high opportunity costs and whether the private financial
returns to participating in the PKH is greater than those of
non-participation.
Methodology
Two hypotheses will be examined.
1) Net revenue of children participating in the program
is higher than or same with that of non-participating
children on a 1-year basis.
2) NPV of children participating in the program is
higher than or same with the NPV of non-participants
in the program in the short (5-year), medium (10-
year), and long terms (45-year).
For the test, this study classifies all children into two
groups. The first group is the children who are currently
enrolled in school and face a decision on whether to con-
tinue to study while receiving the subsidy (participating in
Conditional cash transfer against child labor: Indonesia Program Keluarga Harapan
PKH), or to start working on a full-time basis, giving up
schooling (not participating in PKH). This first group of
children participating in the program are a treatment group
and are subdivided into four subgroups (A, B, C, and D
groups), depending on the level of educational attainment
and the age when they will be participating in PKH. The
second group of children who do not participate in the
program is a control group and is subdivided into two
subgroups (E and F groups), depending on the level and
age of schooling (Tables 2 and 3).
The groups are categorized as follows:
A. Children participate in the PKH during ages 7–12.
They attend and finish the 6-year primary schooling.
However, they do not continue schooling after com-
pleting primary education.
B. Children participate in the PKH during ages 7–12.
They attend primary school, finish it, and enroll in
junior high school. However, they do not complete
secondary school.
C. Children participate in the PKH during ages 7–12.
They complete primary school with participation in the
program. And they continue to junior high school until
they complete secondary schooling.
D. Children participate in the PKH during ages 13–15.
They attend junior high school and complete it.
E. Children do not participate in the PKH during ages
7–12. Even after those ages, they do not experience
schooling at all.
F. Children do not participate in the PKH during ages
13–15. They have already acquired a primary school
diploma without participating in the program, but do
not attend junior high school.
For the analysis, this study will calculate the net revenue
of children participating in the program on the short-term
(5 years), midterm (10 years) and long-term (until retiring
age) bases. The computation of the NPV of the children is
also made for different periods, as follows:
a) Calculate until 20 years old, which is 5 years from
the age of 15, the year that ILO sets as the minimal
age required to start working.
b) Calculate until 25 years old, which is 10 years from
the age of 15.
c) Calculate until 60 years old, which is the average
retirement age in Indonesia.
However, the starting point of the calculation will vary
since children can start the program in any age during the age
group mentioned above. Therefore, we will not consider
previous educational expenditure, expenditure before join-
ing the program, because such expenditures are sunk costs.
To estimate the net revenue and NPV of children par-
ticipating or not participating in the PKH, the following
395
items are considered: the subsidy of PKH, current wage
income, expected future wage income, education expen-
diture, and cost of living (Table 4). Net revenue is defined
as total receipt of income, net of education expenditures
and living costs. NPV is the present value of the sum of net
revenue in each year during the period considered, i.e.,
each year’s net revenue was discounted at the opportunity
cost of capital to convert the future values to the equivalent
present time value and then was summed up.
Data
Data of ‘‘child wage income’’ and ‘‘education expenditure’’
in Indonesia are taken from the Indonesia Family Life
Survey (IFLS) 4, which was done by RAND Corporation in
2007. Indonesia Family Life Survey (IFLS) has been
implemented once every 4 years, and it covers only 13 of
the 33 provinces in Indonesia. Nevertheless, using it is
reasonable since surveyed areas cover all PKH areas, and
83 % of Indonesians live in those 13 provinces. ‘‘Educa-
tional expenditure’’ contained the expenditure for not only
both primary and secondary schools, but also Islamic
schools. To avoid double counting with per capita cost of
living, only schooling-related expenditure was considered
as educational expenditure. ‘‘Current wage income’’ was
computed for both children participating in the program
and non-participants. Children participating in the program
not only attend school, but also work on a part-time basis
(on average, 11.6 h per week), while children not partici-
pating in the program work on a full-time basis (on aver-
age, 24.4 h per week) (Aldobrandini 2012). Current child
wage income was computed for all students enrolled in
general (non-religious) elementary schools and general
junior high schools since samples of Islamic schools were
too small (only eight) to use.
Information on the program ‘‘subsidy’’ was taken from the
social assistance program and public expenditure review 6
on PKH conditional cash transfers written by the World Bank
(World Bank 2012). Children whose age are 7–12 receive
IDR 600,000 per year while children whose age are 13–15
receive IDR 1,000,000 per year (US$ = IDR 9090 in 2007
when the program started). This amount is about 3–6 % of
the average household expenditure.
Data on ‘‘expected future income’’ and ‘‘per capita living
cost’’ were obtained from government’s Badan Pusat Statistik
(BPS: Central Board of Statistics, Indonesia, 2014 and 2015).
Primary and secondary school ‘‘child’s living costs’’ were
derived by dividing the average cost of living of a household
by four, which is the average family size, and then multiplying
it by 2/3 since a child spends less than an adult. To avoid
double counting, educational expenditure was deducted from
the average household living cost. To establish ‘‘expected
future income,’’ average income by educational attainment
123
396 K. W. Lee, M. Hwang

level over the working lifetime was taken since it was the
only data available (Table 5).
Analysis
Net revenue and living costs
During 1 year in which children participate in the program,
the total net revenue of children participating in the pro-
gram showed negative figures. Even though they received
subsidy, they spent a lot of money on education, and their
earnings were also lower than non-participating children’s
since most children participating in the program also work
at the same time, but their working hours are much shorter
than those of non-participants who work on a full-time
basis.
The net revenue of children who are in primary school,
receiving a subsidy, is IDR -2,167,161, while that of
children who are in junior high school, receiving subsidy,
is IDR -2,713,981 (Table 6). Both of them are smaller
than those of non-participating children. Also, participant’s
net revenue will go worse over time since subsidy is pro-
vided for 4 years only, so they need to endure some part of

Table 1 Governmental
Name Type Year
program for reducing child
labor and education Program Bantuan Tunai Unconditional Cash Transfer Program 2005
Program Keluarga Harapan Conditional Cash Transfer Program 2007
Generasi Sehatdan Cerdas Community CCT Program 2007
Raskin Rice Subsidy Program 2006
Urban Poverty Program – 1998
Kecamatan Development Program – 1998
Program Nasional Pemberdayan Masyarakat National Program for Community Empowerment 2006

Table 2 Children enrolled in primary school and participating in PKH

Age participating in Participate in Attend primary Complete primary Attend junior high Complete junior high
program PKH? school? school? school? school?

A 7–12 O O O X X
B 7–12 O O O O X
C 7–12 O O O O O
D 13–15 O O O O O
O means ‘‘yes’’ to the question, X means ‘‘no’’ to the question

Table 3 Children not participating in PKH

School Participate in Attend primary Complete primary Attend junior high Complete junior high
age PKH? school? school? school? school?

E 7–12 X X X X X
F 13–15 X O O X X
O means ‘‘yes’’ to the question, X means ‘‘no’’ to the question

Table 4 Variables for children participating and non-participating in PKH

Variables for children participating in PKH Variables for children not participating in PKH

Revenue (income) of child Subsidy, –

Current wage income, Current wage income,
Expected future wage income Expected future wage income
Expenditure of child Education expenditure, –
Cost of living Cost of living

123
Conditional cash transfer against child labor: Indonesia Program Keluarga Harapan 397

Table 5 Average annual lifetime labor earnings by education level

Level of education Less than primary education Primary education Junior secondary education
completed completed completed

IDR IDR 7,808,400 IDR 9.370,800 IDR 11,340,000

INDEX 100 120 121
– 100 145
Source: Badan Pusat Statistik (State Council of Statistics, Indonesia) 2014

Table 6 Net revenue of

Primary school children Junior high school children
children participating in PKH in
2007 [unit: IDR] Participants Non-participants Participants Non-participants

Expenditure (A)
Educational expenditure 1,248,172 2,303,791
Cost of living 2,738,104 2,738,104 2,738,104 2,738,104
Revenue (B)
Subsidy 600,000 – 1,000,000 –
Current income 1,219,115 2,543,326 1,327,914 2,770,303
Net revenue total (B)–(A) -2,167,161 -194,778 -2,713,981 32,199
Source: Sect. 3.2 data

the whole schooling period without any subsidy (primary
schooling is for 6 years, and junior secondary schooling is
for 3 years). The program subsidy covers neither the living
cost, nor the educational expenditure fully. The level of
subsidy is too low to cover the educational expenditure,
which is about two times as high as the program subsidy.
Although children participating in PKH also work on a
part-time basis, their current wage income is less than half
that of the non-participating children. Program partici-
pants’ current wage income barely covers the educational
expenditure and cannot cover the living cost fully. There-
fore, the first null hypothesis is rejected, and the alternative
hypothesis that the net revenue of children participating in
the program is lower than the net revenue of non-partici-
pants is accepted.
This study has simulated how much the subsidy level
should be increased to pay off the educational expenditure
(and/or living cost). The program subsidy has to be
increased by about 400 % of the current level of subsidy
for the primary school children and by about 300 % for the
junior secondary school children to cover the expenses.
Then, the net revenue of the children participating in the
program will become positive and greater than that of non-
participating counterparts.
Comparing net present value of program
participants and non-participants
Comparing the net revenue of participating and non-par-
ticipating children on 1-year basis is insufficient, since
expected future wage income will increase at different rates
over the working lifetime, depending on the level of edu-
cational attainment. Therefore, a more adequate compar-
ison between the two (treatment or program-participating,
and control or program-non-participating) groups would be
to consider their revenue and expenditures over longer
periods or throughout their working lifetime, i.e., the pre-
sent value of net revenue or net present value (NPV). For
the computation of NPVs, a discount rate of 10 % per year
was used to discount the future net revenues to the present
value (as of December 31, 2007), following the practice of
the World Bank and other international development
finance institutions.
First, NPVs are compared between program participants
and non-participants in the short term, i.e., after 5 years
from the age of 15, the age of finishing mandatory edu-
cation (Table 7). The results show that the NPVs of most
children in groups B and C, who participated in the pro-
gram during ages 7–12 and continued to secondary edu-
cation (Tables 2, 3), were less than those of the children
who did not participate in the program. In other words, the
present value of the net benefits of participating in the
program is smaller than those of non-participants. This
phenomenon is due to the expensive secondary education
expenditure, as well as the low levels of program subsidy
and lower current wage income due to the low level of
schooling. Even though government designed the program
subsidy that covered tuition, it did not consider transport
fees and other costs like uniforms, school supplies, and
other expenditures related to schooling. The amount of
educational expenditures is about the same as children’s
current income, so compensation of the living cost requires

123
398
Table 7 Comparing NPV in
Starting age Participating in program
the short run (5 years after
15 Years of age) [unit: IDR] Group A
7 -1,664,795
8 847,338
9 3,766,738
10 6,527,289
11 9,665,540
12 13,015,971
13
14
15
Bold and Italic figures indicate that NPV of participating children will be greater than that of non-
participating children
a lot of wage-earning time. But their working hours are
sacrificed by attending school, and the opportunity cost
attending school is as high as half the current wage income
of non-participating children.
On the other hand, however, exceptions are children
who join the PKH in the last 2 years of primary education
(at age 11 or 12) to complete it (group A in Tables 2, 3)
and children who started the program at the age 13–15 and
complete the secondary schooling (group D in Tables 2, 3).
Their NPV (marked by underlined numbers) is greater than
their non-participating counterparts (groups E and F in
Tables 2, 3). In the case of group D (Tables 2, 3), the
expected future income with a secondary school diploma is
significantly higher than the expected income with a pri-
mary school diploma only (Table 5), and this difference
enables group D children to have a higher NPV than
children in other groups including group F children (who
attended primary school, but do not attend junior secondary
school since they do not participate in the program). Some
children of group A (who join the program at age 11 or 12)
complete primary school with the benefit of PKH, but do
not attend secondary school. Their NPV is greater than that
of non-participating counterpart, since they are free from
the expenditure burden of the long primary education
period. Also, some children of group C (who join the
program at age 12) complete primary school, but also
progress to junior secondary school to complete it. Their
NPV is likewise greater than that of non-participating
counterpart, since they can meet the higher secondary
education expenditure with the greater subsidy and sharply
higher future wage income owing to the completion of
secondary education.
In sum, some children, who do not go to junior sec-
ondary school after completion of primary school, partic-
ipating in PKH (group A), and all children, who do go to
junior secondary school to complete it with participation in
PKH (group D), have a higher NPV than that of non-PKH
123
K. W. Lee, M. Hwang
Not participating in program
Group B Group C Group D Group E Group F
-5,843,665 -4,108,893 5,661,971
-3,593,366 -1,685,216 6,442,424
-1,118,036 981,038 7,300,922
1,905,352 4,214,333 8,245,270
5,231,079 7,770,959 9,284,053
8,138,064 11,683,246 10,426,714
15,235,448 11,683,641
19,744,372 12,816,586
24,704,188 14,062,826
participants. However, all children, who complete primary
education participating in PKH and proceed to secondary
school but fail to complete it (group B), have a lower NPV
than their non-PKH participants. Therefore, to benefit from
PKH, it is important for children to complete primary
education and junior secondary schooling, since they can
benefit from the sharply higher future wage income based
on the junior secondary education diploma.
Then, the NPVs of children after 10 years from the age
of 15 have been computed (Table 8). It again shows most
children, who participate in the program during ages 7–12
and proceed to secondary school but fail to complete it
without participating in PKH (group B), as well as chil-
dren, who join the program before age 10 to complete
primary school (some in group A) or to proceed to sec-
ondary school (some in group C,) will have lower NPV
than their non-participating counterpart (the control groups
E and F).
However, exceptions are children who joined the pro-
gram after the age 10 and complete primary education only
(some in group A), children who started the program after
the age 10 to complete primary school and then proceed to
secondary school to complete it (some in group C), and all
children in group D, who complete secondary school by
joining the program. Their NPV is greater than their
counterpart (control groups E and F). All children in group
D could meet the higher secondary school expenses with
greater subsidy and sharply higher future wage income due
to the secondary school diploma over the 10-year period
after schooling (Table 5). Some children in groups A and C
joined the program later in primary schooling, and there-
fore, they could complete primary school with the program
subsidy that lasted for 4 years. Some children in group C
started the program at the later ages of primary schooling
and then completed their junior secondary schooling, but
they could cover the higher secondary school expenses
with greater subsidy and much higher future wage income
Conditional cash transfer against child labor: Indonesia Program Keluarga Harapan 399

Table 8 Comparing NPV in

Starting age Participating in program Not participating in program
the medium run (over 10 years
after age 15) [unit: IDR] Group A Group B Group C Group D Group E Group F

7 4,114,981 -63,890 3,833,174

8 7,205,091 2,764,387 7,051,030 10,913,014
9 10,760,266 5,875,492 10,590,939 12,218,571
10 14,220,170 9,598,233 14,785,225 13,654,684
11 18,127,709 13,693,248 19,398,939 15,234,408
12 22,324,357 17,446,450 24,474,025 16,972,105
13 29,305,304 18,883,571
14 35,221,214 20,736,509
15 41,728,714 22,774,741
Bold and Italic figures indicate that NPV of participating children will be greater than that of non-
participating children

based on the secondary education diploma over the 10-year
period after schooling (Table 5).
Nevertheless, children belonging to group B (complete
primary education with PKH and then progress to junior
secondary school, but do not complete it), as well as some
children, who belong to groups A and C, but participate in
the program too early to cover the whole primary schooling
expenses and living costs with PKH subsidies, have NPVs
lower than the children who do not participate in the pro-
gram (groups E and F). This finding illustrates again that
once starting junior secondary education, it is critical for
program participants to complete it to have a higher NPV
than their non-participating counterparts. Those who do not
complete junior secondary school cannot benefit from the
much higher expected future wage income based on a
secondary school diploma over the 10-year working period.
Finally, children’s NPVs after 45 years (the average
retirement age in Indonesia) from the age of 15 shows that
most children who participate in the program at a primary
schooling age will get NPVs higher than those of children
who do not participate in the program (Table 9). This is
contrary to the situation in the short (5-year) and medium
(10-year) terms. Therefore, the timing of joining the pro-
gram seems to be important in making NPVs of partici-
pating in the program greater than those of non-
participants. The critical age is above 9 for group A and
above 11 for group B. There is no critical age restriction for
groups C and D.
If children in groups A and B join earlier than the
critical age, their NPVs become lower than their non-par-
ticipating counterparts. This is partly because the children
have to endure some years without the program subsidy,
which lasts only 4 years while primary schooling is
6 years, and partly because their expected future wage
earnings that depend on the level of educational attainment
are insufficient to compensate for the educational
expenditure burden and the living costs. Educational
expenditure in junior secondary school is almost 2.0 times
higher than that of primary school, while the PKH subsidy
rises only by 0.6 times, and expected future income with a
secondary school diploma is 1.2 times that of children who
complete their education with a primary school diploma
only (Table 5). This explains why those children in group
B is the most disadvantaged since they have to compensate
for their junior secondary education expenditure, which is
relatively higher than primary education expenditure, with
expected future wage earnings of primary education
attainment only. It also implies that it is critical for children
to enroll for junior secondary education, and once they
enroll in junior secondary school, it is advantageous to
complete it.
It has been demonstrated earlier that the comparative
situation of the net revenue between program participants
and non-participants does not change with some minor
increases in the level of subsidy. Unless the subsidy is
increased by 300–400 % of the current level, the compar-
ative situation of the NPV between the two groups would
not change either (Table 6).
Findings and discussion
The findings of our analysis can be summarized in two
points. First, our analysis shows that in the short (5 years
after age 15)- and medium (10 years after age 15)-term
planning horizons, children participating in PKH at age 10
or under would rarely find their NPVs greater than those of
non-participating counterparts. Therefore, joining PKH at
an early age of primary schooling (age 7–12) is not prof-
itable for the participants in PKH. The reason is that par-
ticipating children’s revenue cannot meet the educational
and living expenditure since the program subsidy is at a
low level and does not cover the full 6-year primary

123
400 K. W. Lee, M. Hwang

Table 9 Comparing NPV in

Starting age Participating in program Not participating in program
the long run (over 45 years after
age 15) [unit: IDR] Group A Group B Group C Group D Group E Group F

7 13,245,228 9,066,358 16,379,169 16,146,272

8 17,248,363 12,807,659 20,851,559 17,975,156
9 21,807,866 16,923,091 25,771,593 19,986,927
10 26,372,529 21,750,592 31,483,945 22,199,875
11 31,495,304 27,060,843 37,767,531 24,634,119
12 37,028,711 32,150,805 44,679,476 27,311,786
13 54,939,065 30,257,221
14 63,418,350 33,247,524
15 72,745,565 40,660,252
Bold and italic figures indicate that NPV of participating children will be greater than that of non-
participating children

education period, and current wage earnings are sacrificed
by attending school. This fact is the main reason why the
CCT in Indonesia (PKH) has not been so effective in
increasing children’s enrollment rates and reducing child
labor.
Our analysis also shows that children completing sec-
ondary school with participation in PKH always find their
NPV greater than non-participants. Therefore, it is desir-
able to ensure that children complete secondary education
with the benefit of PKH. Although joining PKH at a later
age of primary schooling or at secondary schooling ages
makes participating children’s NPV greater than that of
non-participants, children have to start enrolling in primary
school first and then should not dropout out of school to
complete primary and secondary school. We have seen that
increasing the level of program subsidy is not a practical
option since the rate of increase should be so high a level as
300 or 400 % with negative fiscal implications.
One possible solution for making the program effective
in eradicating child labor is to extend the program subsidy
period beyond the current 4 years. Currently, if children
join PKH at an early age of primary schooling, they will
have to endure some years of primary and secondary
schooling without subsidy and have to bear the direct
educational expenses and the opportunity cost of losing
potential wage earnings due to schooling. This burden will
be allayed by extending the subsidy provision period
beyond the current 4 years to cover the full primary and
secondary schooling period.
Secondly, our finding is that, on the long and working
lifetime planning horizon, the NPVs of children who joined
PKH during the early age of primary schooling are greater
than their non-participating counterparts. The issue, how-
ever, is whether the children and their parents, especially
those of poor families, would be apt to make a decision on
a long-term basis. They are more likely to make decisions
on the basis of short- and medium-term prospects of NPVs,
which are adversary to joining PKH.
Therefore, the government will have to take two-pron-
ged actions. One action is to make the long-term prospects
of NPVs for children joining PKH clear and transparent,
and then educate/sensitize parents of poor families.
Another action is to make the short- and medium-term
prospects of NPVs for children joining PKH at an early
stage more favorable. Since cash transfers cannot be
increased sharply by 300–400 % of the current level to
cover both children’s educational expenditures and living
costs in the short run due to heavy fiscal burden, awarding
poor family children scholarships by exempting tuition,
fees, and school supplies would be relatively less costly to
the government and more practically helpful for parents.
Currently, the program subsidy (cash transfer) covers only
half the educational expenditure, let alone children’s living
costs (Table 6).
Conclusions and recommendations
This study aimed to discover the main reason why children
do not participate in or drop out of the conditional cash
transfers program (PKH) in Indonesia and found that high
educational and living expenditures and low subsidies
drive children to working instead of attending school. The
costs of primary schooling in Indonesia are as high as
children’s income and about two times as high as program
subsidies. Junior high school students’ educational expen-
ditures also are more than two times as high as children’s
income and program subsidies. Moreover, the program
subsidy is not given more than 4 years, which is shorter
than the full 6-year primary and 3-year secondary school-
ing period.
Accordingly, children joining PKH to attend primary
school at an early school age do not find their net present
value (NPV) greater than that of their non-participating
counterparts in the short and medium terms. Only in the
long and working lifetime term, they find their net present

123
Conditional cash transfer against child labor: Indonesia Program Keluarga Harapan
value greater than that of their non-participating counter-
part. Children attending junior secondary school with
participation in PKH always find their NPV greater than
that of their non-participating counterparts mainly because
their expected future labor earning is much higher than that
of primary school completers.
Therefore, this study recommends, first, that the gov-
ernment extend the duration of program subsidy provision
beyond the current 4-year period, so that poor children can
enroll primary school at an earlier age with participation in
PKH and continue with junior secondary schooling for
completion. Second, the government educate and sensitize
poor family parents regarding the profitable long-term
prospects of NPV of the children joining PKH to attend
primary and secondary school. Third, the government
lower parents’ burden of educational expenditures by
awarding poor family children scholarships for primary and
junior secondary education, for example, by exempting
them from paying school fees and tuition.
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