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Welfare Impact of a Ban on Child Labor

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  • Jorge Soares

    ()
    (Department of Economics,University of Delaware)

Abstract

This paper presents a new rationale for imposing restrictions on child labor. In a standard overlapping generations model where parental altruism results in transfers that children allocate to consumption and education, the Nash-Cournot equilibrium results in sub-optimal levels of parental transfers and does not maximize the average level of utility of currently living agents. A ban on child labor decreases children's income and generates an increase in parental transfers bringing their levels closer to the optimum, raising children's welfare as well as average welfare in the short-run and in the long-run. Moreover, the inability to work allows children to allocate more time to education, and it leads to an increase in human capital. Besides, to increase transfers, parents decrease savings and, hence, physical capital accumulation. When prices are flexible, these effects diminish the positive welfare impact of the ban on child labor.

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File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2009/UDWP2009-01.pdf
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Bibliographic Info

Paper provided by University of Delaware, Department of Economics in its series Working Papers with number 08-01.

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Length: 39 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:dlw:wpaper:09-01.

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Web page: http://www.lerner.udel.edu/departments/economics/department-economics/
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Keywords: child labor; altruism; overlapping generations; welfare.;

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References

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  1. Boyan Jovanovic & Peter L. Rousseau, 2005. "General Purpose Technologies," NBER Working Papers 11093, National Bureau of Economic Research, Inc.
  2. Valerie A. Ramey & Neville Francis, 2006. "A Century of Work and Leisure," NBER Working Papers 12264, National Bureau of Economic Research, Inc.
  3. Rogers Carol Ann & Swinnerton Kenneth A, 2005. "A Theory of Exploitative Child Labor," Labor and Demography 0510006, EconWPA.
  4. Sylvain Dessy & Stephane Pallage, 2000. "Child Labor and Coordination Failures," Cahiers de recherche CREFE / CREFE Working Papers 109, CREFE, Université du Québec à Montréal.
  5. Stephen A. O'Connell & Stephen P. Zeldes, 1993. "Dynamic Efficiency in the Gifts Economy," NBER Working Papers 4318, National Bureau of Economic Research, Inc.
  6. Basu, Kaushik & Van, Pham Hoang, 1998. "The Economics of Child Labor," American Economic Review, American Economic Association, vol. 88(3), pages 412-27, June.
  7. Kaushik Basu, 1999. "Child Labor: Cause, Consequence, and Cure, with Remarks on International Labor Standards," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1083-1119, September.
  8. Jorge Soares, 2008. "Borrowing Constraints, Parental Altruism and Welfare," Working Papers 08-12, University of Delaware, Department of Economics.
  9. Dirk Krueger & Jessica Tjornhom Donohue, 2004. "On the Distributional Consequences of Child Labor Legislation," NBER Working Papers 10347, National Bureau of Economic Research, Inc.
  10. Sylvain E. Dessy & Stéphane Pallage, 2005. "A Theory of the Worst Forms of Child Labour," Economic Journal, Royal Economic Society, vol. 115(500), pages 68-87, 01.
  11. Matthias Doepke & Fabrizio Zilibotti, 2005. "The macroeconomics of child labor regulation," Staff Report 354, Federal Reserve Bank of Minneapolis.
  12. Fernandez, Raquel & Rogerson, Richard, 1995. "On the Political Economy of Education Subsidies," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 249-62, April.
  13. Bernheim, B Douglas, 1989. "Intergenerational Altruism, Dynastic Equilibria and Social Welfare," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 119-28, January.
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Cited by:
  1. Eugenia Fotoniata & Thomas Moutos, 2013. "Product Quality, Informality, and Child Labor," Review of Development Economics, Wiley Blackwell, vol. 17(2), pages 268-283, 05.
  2. Alice Fabre & Stéphane Pallage, 2011. "Child Labor, Idiosyncratic Shocks, and Social Policy," Cahiers de recherche 1115, CIRPEE.
  3. Heather Congdon Fors, 2012. "Child Labour: A Review Of Recent Theory And Evidence With Policy Implications," Journal of Economic Surveys, Wiley Blackwell, vol. 26(4), pages 570-593, 09.

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