ESC Final Review.docx - Questions for Final Exam 1 How is...

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Questions for Final Exam. 1.How is child labor defined? What is child employment vs child labor? Are all forms of child employment discouraged?
2.Child labor provides an example of a ‘low income trap’. Discuss with reference to the Basu model.The parents give away the child for a loan, and then the kid works until the loan is paid off, but it takes such a long time most are just stuck. Basu ModeloTo model child labor, we make to important assumptionsLuxury AxiomA household with a sufficiently high income would not send its children to work.oSubstitution AxiomChild and Adult labor are substitutes.Children are not as productive as adults, and adults can do any work that children can do.
On the x-axis, we have the supply of labor in adult equivalents. Because we are interested in understanding the impact of the demand for labor, in a graph it is best to consider homogeneous units of labor. So, if a child laborer is y times as productive as an adult worker, we consider one child the productive equivalent of y adult workers. According to our assumptions, y< 1. For example, if a child laborer is half as productive as an adult worker, y = 0.5. We start with the assumption that in the region in question, all (unskilled) adults work, regardless of the wage. This gives us a perfectly inelastic, vertical adult labor supply curve, called AA’ in the diagram.oHighly inelastic supply is a very reasonable assumption among families sopoor that their children must work. While the parents may not have modern-sector jobs, every adult is involved in some type of activity to help the family survive. oThis adult supply AA’ is simply the number of unskilled adults. To understand the total labor supply curve, consider what happens if the wagefalls. If the wage falls below wH, then some families find they are poor enough that they

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