Diana Kruger () (Pontificia Universidad Católica de Valparaíso) Rodrigo R. Soares () (University of Maryland, Catholic University of Rio de Janeiro, NBER and IZA) Matias Berthelon () (Pontificia Universidad Católica de Valparaíso)
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This paper develops and estimates a simple structural model of household decisions regarding child labor and schooling. We argue that part of the conflicting results from the previous literature - related to the effect of improvements in economic conditions on child labor - derives from the different income and substitution effects implicit in different types of income variation. Our model leads to an empirical specification where income and substitution effects can be clearly identified. We apply our model to Brazil and use agricultural shocks to local economic activity (coffee and overall agricultural production) to distinguish between the effects of increases in household income and increases in the opportunity cost of children’s time. The results show that higher parental wages and household wealth are associated with lower child labor and higher school attendance. Nevertheless, conditional on family income and socioeconomic status, exogenous temporary increases in local economic activity are associated with increased opportunity cost of children’s time and, therefore, higher child labor and lower schooling. The results reconcile economic theory with seemingly contradictory evidence from the previous empirical literature.
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number
2776.
Find related papers by JEL classification: D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
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