This volume presents three research papers on child labor and economic development.
In Chapter 1, we argue that blanket child labor restrictions can harm the children of developing nations even in the long run. To develop our argument, we analyze the allocation of children's time among school, work and crime within a general equilibrium model with overlapping generations. Our main insight is that the social return to child labor can be higher than its private return if laws against crime and laws promoting compulsory education are not enforced. The reason is that child labor crowds out child crime, not just schooling. The perverse long-run consequences of otherwise well-intended policies against child labor are more likely in countries with poor institutions, where property rights are insecure and the returns to schooling are low.
In Chapter 2, we examine the long-run optimal policy to address the problem of child labor in developing countries. We extend the model presented in the first chapter and examine the role the imperfect enforceability of laws against crime and laws promoting compulsory schooling play in determining the long-run optimal policy. We argue that a combination of subsidies for child work and subsidies for school attendance maximizes social welfare in the long run. Such a combination of subsidies is the optimal way to reduce child labor and crime simultaneously.
In Chapter 3, I explore the effect of credit market imperfections and school quality on the joint distribution of schooling, child labor and crime. I develop an overlapping generations model of endogenous growth and human capital inequality. I argue that banning child labor can harm the children living in the poorest households if the security of property rights is sufficiently poor. Furthermore, even a temporary ban on child labor can have permanent negative effects on everyone's welfare if school quality and property rights are sufficiently poor. Finally, I show that access to credit markets may have no effect on schooling decisions if the productivity of child labor is sufficiently poor. However, an increase in school quality may eliminate child labor even in the presence of credit market imperfections.