CHILD LABOUR I.Introduction:
Although child labor is an age‐old phenomenon and of enormous importance in the contemporary world,1 there has been little formal analysis of this issue. While the existence of child labor is frequently condemned as odious and immoral, the real issue is to better understand the determinants of child labor so as to evaluate its welfare implications. In this paper we show that, even when parents are fully altruistic toward their children, child labor can be Pareto inefficient. Central to our analysis is the impact of labor on a child’s future earning ability as an adult. Child labor is socially inefficient when it has a sufficiently adverse effect on such ability, but it may nevertheless persist either when parents leave their children no bequests or when capital markets are imperfect. Both of these circumstances imply that parents fail to internalize the socially efficient trade‐off between child labor and earning ability.
II.Summary: We build a model of child labor and study its implications for welfare. We assume that there is a trade‐off between child labor and the accumulation of human capital. Even if parents are altruistic and child labor is socially inefficient, it may arise in equilibrium because parents fail to fully internalize its negative effects. This occurs when bequests are zero or when capital markets are imperfect. We also study the effects of a simple ban on child labor and derive conditions under which it may be Pareto improving in general equilibrium. We show that the implications of child labor for fertility are ambiguous.
CHILD LABOUR I.Introduction:
Although child labor is an age‐old phenomenon and of enormous importance in the contemporary world,1 there has been little formal analysis of this issue. While the existence of child labor is frequently condemned as odious and immoral, the real issue is to better understand the determinants of child labor so as to evaluate its welfare implications. In this paper we show that, even when parents are fully altruistic toward their children, child labor can be Pareto inefficient. Central to our analysis is the impact of labor on a child’s future earning ability as an adult. Child labor is socially inefficient when it has a sufficiently adverse effect on such ability, but it may nevertheless persist either when parents leave their children no bequests or when capital markets are imperfect. Both of these circumstances imply that parents fail to internalize the socially efficient trade‐off between child labor and earning ability.
II.Summary: We build a model of child labor and study its implications for welfare. We assume that there is a trade‐off between child labor and the accumulation of human capital. Even if parents are altruistic and child labor is socially inefficient, it may arise in equilibrium because parents fail to fully internalize its negative effects. This occurs when bequests are zero or when capital markets are imperfect. We also study the effects of a simple ban on child labor and derive conditions under which it may be Pareto improving in general equilibrium. We show that the implications of child labor for fertility are ambiguous.