Child Labour, human capital formation and size of landholding: short run and long run analysis

This paper considers an overlapping generations model of a household economy in an agrarian set up to examine the short run as well as long run effects of increase in size of land holding on child labour, human capital formation and growth. It is assumed that each household consists of one adult and one child. The adult is employed outside agricultural sector and earns wage proportional to human capital and the child is employed in the land possessed by the household and also goes to school. The adult derives satisfaction from household consumption and human capital level of its child. Human capital accumulation of child depends on time devoted by child for schooling and financial resources invested towards education. The Parent maximizes her utility by making decision about consumption, educational investment for the child and time allocation of the child between schooling and work. It is found that in the short run, an increase in size of land holding leads to decrease in school attendance by children and increase in child labour. Moreover it is found that wage and human capital level of the parent positively influence human capital level of the child. In the long run, size of land holding shows U shaped relationship with both steady state level of human capital and growth rate of human capital.