Learning by doing, low level equilibrium trap, and effect of domestic policies on child labour

This paper builds an overlapping generations household economy model with learning by doing effect in unskilled work. We study the short run equilibrium of schooling, relationship between child schooling and parental schooling, long run dynamics of schooling and human capital and relative effectiveness of two domestic policies- child labour ban and education subsidy on schooling. We find some interesting results. If parents working in unskilled sector do not experience any schooling at their childhood, they will never send their children for schooling. But the relationship between parental schooling and child schooling may not be monotonic. This relationship depends on other factors like subsistence consumption expenditure, learning by doing effect, responsiveness of wage to human capital in skilled sector, efficiency of education technology. Existence of low level equilibrium trap for unskilled parent depends on the specific form of human capital accumulation function. For a certain range of parental schooling time path of child schooling will be oscillating in nature. Decrease in child wage increases steady state schooling only if the maximum possible adult unskilled wage exceeds the sum of the schooling cost and subsistence expenditure of the household. If unskilled adult wage is sufficiently small, education subsidy is more effective in enhancing schooling than banning child labour.