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On the Distributional Consequences of Child Labor Legislation

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Dirk Krueger
Jessica Tjornhom Donohue

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Abstract

In this paper we construct a dynamic heterogeneous agent general equilibrium model to quantify the effects of child labor legislation on human capital accumulation and the distribution of wealth and welfare. Crucial model elements include a human capital externality in the market sector, an informal home production sector in which child labor laws cannot be enforced, uninsurable idiosyncratic income risk, borrowing constraints, and endogenous wage and interest rate determination in general equilibrium. We calibrate the model to US data around 1880 and find that the welfare consequences for individual households of a transition to policies that restrict child labor or provide tax-financed free education depend crucially on the main source of a households' income. Whereas households with significant financial asset holdings unambiguously lose from any government intervention, high-wage workers benefit most from a ban on child labor, while low-wage workers benefit most from free education. Based on a utilitarian social welfare function, the introduction of free education results in substantial welfare gains, in the order of 3% of consumption, mainly because it leads to higher human capital accumulation. A child labor ban, in contrast, induces (small) welfare losses because it reduces income opportunities for poor families without being effective in stimulating education attainment.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10347.

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Date of creation: Mar 2004
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Handle: RePEc:nbr:nberwo:10347

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Find related papers by JEL classification:
I28 - Health, Education, and Welfare - - Education - - - Government Policy
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Matthias Doepke & Fabrizio Zilibotti, 2009. "Do International Labor Standards Contribute to the Persistence of the Child Labor Problem?," NBER Working Papers 15050, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Matthias Doepke & Fabrizio Zilibotti, 2005. "The Macroeconomics of Child Labor Regulation," American Economic Review, American Economic Association, vol. 95(5), pages 1492-1524, December. [Downloadable!]
    Other versions:
  3. Matthias Doepke, . "Origins and Consequences of Child Labor Restrictions: A Macroeconomic Perspective," UCLA Economics Online Papers 413, UCLA Department of Economics. [Downloadable!]
    Other versions:
  4. Jorge Soares, 2009. "Welfare Impact of a Ban on Child Labor," Working Papers 09-01., University of Delaware, Department of Economics. [Downloadable!]
  5. G. Toniolo & G. Vecchi, 2007. "Italian children at work, 1881-1961," UCW Working Paper 35, Understanding Children's Work (UCW Project). [Downloadable!]
    Other versions:
  6. Alejandro Donado & Klaus Waelde, 2008. "Trade Unions Go Global!," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
    • Alejandro Donado & Klaus Wälde, 2008. "Trade Unions go global!," Working Papers 2008_22, Department of Economics, University of Glasgow, revised Aug 2008. [Downloadable!]
    • Donado, Alejandro & Wälde, Klaus, 2009. "Trade unions go global!," IAB Discussion Paper 200903, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
  7. Kaushik Basu & Homa Zarghamee, 2008. "Product boycott a good idea for controlling child labor? A theoretical investigation," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 08-09, Indian Statistical Institute, New Delhi, India. [Downloadable!]
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