Human capital model Invest now to have higher outputs in the future see graph

Human capital model invest now to have higher outputs

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- 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 correlation does 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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