Welfare Impact of a Ban on Child Labor

17 Pages Posted: 15 Sep 2010

Abstract

This article presents a new rationale for imposing restrictions on child labor. In a standard overlapping generation model where parental altruism results in transfers that children allocate to consumption and education, the Nash-Cournot equilibrium results in suboptimal levels of parental transfers and does not maximize the average level of utility of currently living agents. A ban on child labor decreases children's income and generates an increase in parental transfers bringing their levels closer to the optimum, raising children's welfare as well as average welfare in the short run and in the long run. Moreover, the inability to work allows children to allocate more time to education, and it leads to an increase in human capital. Besides, to increase transfers, parents decrease savings and hence physical capital accumulation. When prices are flexible, these effects diminish the positive welfare impact of the ban on child labor.

JEL Classification: D91, E21

Suggested Citation

Soares, Jorge, Welfare Impact of a Ban on Child Labor. Economic Inquiry, Vol. 48, Issue 4, pp. 1048-1064, October 2010, Available at SSRN: https://ssrn.com/abstract=1677122 or http://dx.doi.org/10.1111/j.1465-7295.2009.00229.x

Jorge Soares (Contact Author)

University of Delaware ( email )

Department of Economics
Purnell Hall Room 315
Newark, DE 19716
United States
(302) 831 1914 (Phone)
(302) 831 6968 (Fax)

HOME PAGE: http://udel.edu/~jsoares

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