-Human capital model: Invest now to have higher outputs in the future (see graph) -Efficiency issues:Maximization of societal welfare and output = social welfare economics (function of all utilities). -Poor society; costs might be higher and returns lower because there is no access to jobs that provide output. -Government can solve credit constraint issues;this will be beneficial due to public benefits. Economic Problem: -Concern (Udry, 2003): child labor sacrifices future welfare of the child in exchange for current benefit for household.-Dynastic trap (vicious cycle) Udry paper; not socially efficient to employ children. Arguments: 1.Positive externalities to education 2.Allocation of benefits between generations within family 3.Financial markets imperfections. Parents are maximizing their own income and are not far-sighted enough or predict help from their children later on; therefore less willing to invest in their child’s education. Causes and consequences: Increase wages for adults -Strong cross sectional variations, but increase agricultural prices can both work in 2 ways on child labor. Income and child labor correlationdoes not imply income is the underlying cause.-Returns to education might be higher for rich children -Mayby quality of education is lower for poor Look at shocks, why? Policies: -Increase adult incomes; usually also increases output from child labor; increased opportunity cost of sending people to school. Downloaded by Vicky Gupta ([email protected])lOMoARcPSD|3929542
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Why look at external factors? Correlation does not mean causation; need to isolate specific factors and their impact on child labor (identify the income effect separately, for example). -Reduce cost of education Conditional cash transfers, provide food, public transport -Ban child labor Laws against education. Difficult to implement, immediate effect is less opportunities for poor families. Multiple equilibria for investment in education - Why might there not be one optimal level? -Credit constraints -Costs of education might be different for individuals (distance to school for example) -Quality of education (No supplies, no proper building, large classes, low teacher quality) -Anticipated labor demand conditions/ labor market (less demand for labor in school, learn more from learning the ropes at the farm). -Information (parents lack fundamental information about costs and benefits; more uncertainty involved in estimating output from education, the increase in income might be hard to know and be sure about the investment in education). -Discount rate (different value of the future depending on life expectancy, for example) -Social stuff (girls don’t need to go to school, facilities at the schools) Solutions: -Scholarships, cheap loans -Public transport (cheap or free), build more schools -Improve supplies, teacher quality, budgets for schools -learn -Improve access to diverse jobs, infrastructure for jobs -Improve children about the benefits of education Economic models -Basu and Tzannatos (WBER) -Parents will only send their child to work if there income falls below minimum levels -
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