Child labor participation, human capital accumulation, and economic development

This paper presents a household theoretical model that explains child labor as a function of household resources, wages, and child work time allocation. The analysis is based on the interplay between household educational investment choices and adult–child wage differentials. The theory dynamics reveal that child labor participation is increasing in wage equality and as the wage gap decreases it reduces the distance by where the households is able to escape the cycle of poverty by investing beyond the dynamically attracting poverty level of inefficient human capital investment. The model dynamics also present the conditions by where poor households use child labor as a development strategy, as a means of accumulating physical assets at the expense of child human capital investment, in the early stages of development. The policy implications of this work are that child labor bans increase the wage differentials between child and adult earners while simultaneously decreasing the household incentive to invest in child education. The impact, of such policies, has a double negative effect on poor households. Furthermore, policies that reduce wage distortions, between adult and child labor, increase adult human capital, and provide universal access to educational will have long-run developmental growth effects. These policies, in the long-run, are shown to produce household substitution away from child labor and toward the acquisition of schooling based education.