Child Labor Eradication Without Tears

Abstract

Child labor deprives children of their childhood, compromises their schooling, and stunts
their future potential; yet, it complements family income, possibly preventing destitution.
This paper examines a dynamic laissez-faire economy in which child labor is endemic, and
studies a policy designed to eradicate child labor not via the imposition of a child-labor ban
but by creating incentives for parents who care about their kids’ education to keep them in
school voluntarily. The policy works by making tax-financed investments in school quality,
allowing parents to economize on private education-related investments in their children.
Such improvements in school quality also help to increase current levels of human capital
and incomes; they also raise future levels due to a human capital externality. These welfare
gains relative to the laissez-faire may be taxed to compensate parents for the loss of child labor
income. The transition to a long run with no child labor and no parental out-of-pocket
education-related expense may even be Pareto-improving.

Keywords: child labor, education, government policy, intergenerational transfers, Pareto improvements

JEL Classification: E24, H 31, I 38, D 64