credit constraints and the phenomenon of child labor abstract this paper develops an overlapping generations general equilibrium model where inefficient child labor arises due to credit constraints it derives a positive relationship between inequality in the distribution of income and the incidence of child labor looking at policy implications it shows how trade sanctions against countries using child labor may fail to reduce the incidence of child labor it discusses some alternative policies to reduce the incidence of child labor

fiscal policy expectation traps and child labor i introduction child labor is widespread in the contemporary world in fact the international labor organization ilo estimates that 246 million of the world s children aged 5 17 or 16 are child laborers most living in developing countries 1 recently there has been renewed interest in this topic among economists which has led to a series of theoretical studies with the aim of better understanding the causes and consequences of child labor in order to help guide appropriate policy responses as in grootaert and kanbur 1995 basu 1999 and basu and tzannatos 2003 for useful literature surveys typically theoretical models designed to address the important policy issues surrounding child labor posit that a family s decision to send a child to the labor market is taken only as a last resort in order to escape the dire consequences of poverty for example basu and van 1998 baland and robinson 2000 show that this response on the part of the family may be stronger in a dynamic setting because contracts between children and adults are not self enforcing and capital markets are incomplete 2 in this case an adult decision maker may not only send their children to work to escape poverty in the present but do so to escape poverty in the future as well this decision will hinder a child s ability to accumulate human capital and can lead to persistent cycles of poverty and child labor across generations 3 we begin by showing that a benevolent government can address the incidence of child labor that results from the non enforceability of intergenerational contracts and incomplete capital markets through the appropriate use of fiscal policy and that this policy is pareto improving it is then shown that if society s confidence in their government is incomplete this lack of confidence can render the same fiscal policy ineffective in other words if households do not believe that the government will follow through on their policy promise then in fact it is quite possible that the government will not be able to follow through on their promise as a result of these beliefs 4 this self reinforcing nature of fiscal policy in the presence of uncertainty can leave a country in an expectations trap with a low level of human capital and child labor 5 to formally demonstrate this fiscal policy expectations trap hypothesis we employ a three period overlapping generations model in which child labor exists 6 this stylized setup will keep the dynamics manageable and allow us to highlight the effects of uncertainty also within this framework we introduce a missing intergenerational contracts market in conjunction with a human capital production function that exhibits a threshold with respect to parental human capital which gives rise to two locally stable steady states there is a good equilibrium where there is a relatively high level of parental human capital which results in a high level of income and no child labor and there is a bad equilibrium where there is a relatively low level of parental human capital which results in a low level of income and positive child labor this low income child labor equilibrium is the standard poverty trap scenario that typically exists in a deterministic economy with multiple equilibria it is then shown that a benevolent government can replicate the missing intergenerational contracts market with a pay as you go social security program thereby eliminating this component of child labor in an economy with perfect foresight in addition it is also shown that this policy is pareto improving in the sense that all generations are strictly better off under this policy except the initial old who are no worse off the dynamics of this social security program are intuitive if child labor is one possible mechanism adults can use to redistribute resources from their children then the government can reduce this incentive by announcing a social security program that will begin during the current adults old age an institutional intergenerational contract

macro implications of government redistributive tax transfer policies how do macro variables such as aggregate consumption aggregate money demand prices and interest rates vary in response to government attempts to redistribute income across agents through selective tax transfer policies this question is investigated for an overlapping generations model consisting of heterogeneously endowed three period lived agents in the presumably most favorable case for invariance identical log linear utility functions it is shown that positive interest rate macro equilibria are invariant with respect to redistributions in social security benefits if and only if all agents initially exhibit qualitatively identical liquidity preference behavior i e positive money holding only in youth only in middle age or never

the gender gap fertility and growth changes in fertility have long been recognized as important correlates of economic growth with the relationship between the level of fertility and the level of income per capita being one of the strongest observable correlations in cross country data this paper examines the linkages between fertility and growth theory the structure of the model is presented in sections on production couples decision making system dynamics and steady state equilibria the first component of the model is that increases in capital per worker raise womens relative wages since capital is more complementary to womens labor input than to mens the second component is that increasing womens relative wages reduces fertility by raising the cost of children more than household income finally lower fertility raises the level of capital per worker a positive feedback loop generates demographic transition a rapid decline in fertility accompanied by accelerated output growth

out of control what can we learn from the end of massachusetts rent control abstract this paper uses the sudden end of rent control in massachusetts in 1995 to estimate the effects of rent control i examine boston msa data from the american housing survey years 1985 1998 to determine how rent control affected the quantity price and quality of rental housing my results suggest rent control had little effect on the construction of new housing but did encourage owners to shift units away from rental status and reduced rents substantially rent control also led to deterioration in the quality of rental units but these effects appear to have been concentrated in smaller items of physical damage i also examine specifications that allow rent control to affect rent levels both directly through controlled status and indirectly through spillover effects from nearby rent controlled units these estimates imply that rent control may have small effects on the price of the non controlled rental housing stock

cheap children and the persistence of poverty this paper develops a theory of fertility that offers an explanation for the persistence of poverty within and across countries if educated individuals have a comparative advantage in raising educated children then parental fertility choice is shown to give rise to a poverty trap in which the poor choose high fertility rates with low investment in child quality moreover the impact of child quality choice on economic performance is amplified by the diluting effect of higher fertility on physical capital accumulation the theory proposes insights regarding the effects of inequality globalisation and life expectancy on economic growth and demographic transitions this paper develops a theory of fertility and child educational choice that offers an explanation for the persistence of poverty within and across countries the joint determination of the quality education and quantity of children in a household is studied under the key assumption that individuals productivity as teachers increases with their own human capital in contrast the minimum time cost associated with raising a child regardless of the child s quality the quantity cost is not affected by parental education as a result the price of child quantity relative to the price of child quality increases with individuals wages in particular for low wage individuals for whom the opportunity cost of time is low children of minimal quality are cheap this assumption therefore generates a comparative advantage for the poor in child quantity whereas high wage educated individuals have a comparative advantage in raising quality children consistent with the well known evidence poor households thus choose relatively high fertility rates with relatively low investment in their offspring s education and therefore their offspring are poor as well in contrast high income families choose low fertility rates with high investment in education and therefore high income persists in the dynasty evidence from the us provided by hanushek 1992 suggests that a trade off between quantity and quality of children does indeed exist hanushek argues that movements in family size could explain over half the variance in some test scores and that the elasticity of achievements with respect to the number of children in the family is 0 03 implying that the annual achievement growth of each child in a family will fall about 2 when a second child is added and about 0 5 when a sixth child is added 1

the family and the state the immaturity of children sometimes precludes efficient arrangements between children and parents or others responsible for child care the difficulty in establishing efficient relations within families provides the point of departure for our interpretation of the heavy state involvement in the family the authors believe that a surprising number of state interventions mimic the agreements that would occur if children were capable of arranging for their care many regulations of the family improve the efficiency of family activities these interventions include subsidies to education and training social security and other old age support subsidies to births laws that limit access to divorce and the sale of children and laws that require parents permission for early marriage and other choices of children families that leave bequests can force children to repay parents for investments in human capital by reducing bequests therefore these families do not underinvest in childrens human capital by contrast families that do not leave bequests often poorer families do underinvest in children the state may subsidize schools and other training facilities to raise investments in children by poorer families to efficient levels authors modified

creative destruction barriers to urban growth and the great boston fire of 1872 urban growth requires the replacement of outdated buildings yet growth may be restricted when landowners do not internalize positive spillover effects from their own reconstruction the boston fire of 1872 created an opportunity for widespread simultaneous reconstruction initiating a virtuous circle in which building upgrades encouraged further upgrades of nearby buildings land values increased substantially among burned plots and nearby unburned plots capitalizing economic gains comparable to the prior value of burned buildings boston had grown rapidly prior to the fire but negative spillovers from outdated durable buildings had substantially constrained its growth by dampening reconstruction incentives

the economics of child labor if child labor as a mass phenomenon occurs not because of parental selfishness but because of the parents concern for the household s survival the popular argument for banning child labor loses much of its force however this assumption about parental decision making coupled with the assumption of substitutability in production between child and adult labor could result in multiple equilibria in the labor market with one equilibrium where children work and another where adult wage is high and children do not work the paper establishes this result and discusses its policy implications copyright 1998 by american economic association

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

the impact of income and non income shocks on child labor evidence from a panel survey of tanzania summary this paper investigates the impact of income and non income shocks on child labor using a model in which the household maximizes utility from consumption as well as human capital development of the child we also investigate if access to credit and household assets act as buffers against transitory shocks our results indicate significant effects of agricultural shocks on the child s overall work hours and agricultural work hours with higher effects for boys crop shocks also have significant adverse effects on school attendance with girls experiencing a more than 70 increase in the probability of quitting schooling the results also indicate that access to a bank account has a buffering effect on the impact of shocks on child hunger having a bank account reduces both male child labor and household work hours of a girl child while assets reduce working hours of girls we do not find it having a significant effect on boys we also do not see assets to act as a buffer against shocks

child labor cause consequence and cure with remarks on international labor standards although the literature on child labor is enormous it lacks a common theoretical foundation in this paper analytical survey of this field is provided keeping in mind that this is an area where the primary reason for theorizing is ultimately to influence policy overall it is noted that the literature on child labor is an illustration of abundance and anarchy although empirical writings on child labor are numerous they are not usually founded on theory it is argued that there is much that can be done in curbing the issue of child labor several theories were studied in this paper including collaborative intervention such efforts include public action which alters the economic environment such that the parents of their own accord prefer to withdraw the child from labor force another strategy involves the government a legal intervention is enforcing a total ban on the subject although such interventions have good intentions some of them may not be feasible in general it is better to take economy wide measures against child labor and if there is to be a sector specific ban it should be based on the working conditions of that sector rather than the destination of the goods

is child labor inefficient we build a model of child labor and study its implications for welfare we assume that there is a trade off between child labor and the accumulation of human capital even if parents are altruistic and child labor is socially inefficient it may arise in equilibrium because parents fail to fully internalize its negative effects this occurs when bequests are zero or when capital markets are imperfect we also study the effects of a simple ban on child labor and derive conditions under which it may be pareto improving in general equilibrium we show that the implications of child labor for fertility are ambiguous

is product boycott a good idea for controlling child labor a theoretical investigation abstract a popular form of action to curb child labor and uphold international labor standards in general is a product boycott by consumers there are labeling agencies that inform us if for instance a carpet or a hand stitched soccer ball is free of child labor the presence of a consumer boycott will typically mean that products tainted by child labor will command a lower price on the market than ones certified to be untainted it is popularly presumed that such consumer activism is desirable the paper formally investigates this presumption and shows that consumer product boycotts can in a wide class of situations have an adverse reaction that causes child labor to rise rather than fall this happens under weak and plausible assumptions hence there has to be much greater caution in the use of consumer activism and one has to have much more detailed information about the context where child labor occurs before using a boycott

child labor and coordination failures abstract in this note we show that a technology based coordination failure may explain the emergence of laws restricting child labor child labor may arise because of the lack of a coordination mechanism between parental decisions to invest in the human capital of their children and firms decisions to invest in skill biased technologies legislative intervention in many cases helps coordinate expectations towards a pareto superior outcome with investments both in human capital and in skill biased technologies

bounded rationality expectations and child labour this paper develops a model with overlapping generations where the household s optimal fertility child labour and education decisions depend on the parents expectations or beliefs about the return to education it is shown that there exists a range of parental income where the fertility rate is high and children participate in the labour market and receive an incomplete education if a parent believes the return to education is low the act of participating in the labour market reduces the child s ability to accumulate human capital thus the action of sending a child into the labour market is sufficient to ensure that the parents initially pessimistic expectations are fulfilled it is then shown that a one time policy intervention such as banning child labour and mandatory education can be enough to move a country from the positive child labour equilibrium to an equilibrium with no child labour rationalite limitee anticipations et travail des enfants ce memoire developpe un modele de chevauchement des generations ou la fecondite optimale du menage le travail des enfants et les decisions a propos de l education dependent des anticipations des parents ou de qu ils croient etre le rendement sur l education on montre qu il existe un eventail de revenus des parents pour lequel le taux de fecondite est eleve et les enfants participent au marche du travail et recoivent une education incomplete si un parent croit que le rendement sur l investissement en education est faible le fait d entrer sur le marche du travail reduit la capacite de l enfant a accumuler du capital humain et donc le fait de l envoyer sur le marche du travail est suffisant pour s assurer que les anticipations pessimistes du parent se realisent on montre qu une intervention ponctuelle de politique publique a un moment donne comme bannir le travail des enfants ou imposer l education obligatoire peut suffire pour deplacer un pays d un equilibre avec travail des enfants vers un equilibre sans travail des enfants

a theory of the worst forms of child labour although intuitive and morally compelling a ban on the worst forms of child labour in poor countries is unlikely to be welfare improving we show that harmful forms of child labour have an economic role by maintaining wages for child labour high enough they allow human capital accumulation in poor countries unless appropriate mechanisms are designed to mitigate the decline in child labour wages caused by reduced employment options for children a ban on harmful forms of child labour will likely prove undesirable we perform our analysis within a simple model of parental investment in children s education

explaining cross country differences in policy response to child labour we develop a model of child labour where poverty and inequality combine to determine policy response to child labour if there are strategic complementarities between parents decisions to educate their children and firms technology choice multiple school enrolment equilibria arise only rich countries and those that are not too poor and have a low wealth inequality benefit from adopting child labour laws this is because such laws commit an economy with either of those initial conditions to the full school enrolment equilibrium which pareto dominates all other equilibria moreover wealth redistribution is not sufficient to eliminate child labour jel classification i20 o33 une explication des differences d un pays a l autre dans la reaction des politiques au phenomene du travail des enfants les auteurs developpent un modele de travail des enfants dans lequel les niveaux de pauvrete et d inegalite se combinent pour determiner les politiques si des complementarites strategiques existent entre les decisions des parents d eduquer leurs enfants et le choix de technologie des entreprises de nombreux equilibres impliquant divers niveaux d inscription a l ecole sont possibles seuls les pays riches et ceux qui ne sont pas trop pauvres ou qui ont un degre d inegalite de la richesse relativement bas tirent profit de lois reglementant le travail des enfants c est le cas parce que de telles lois engagent une economie qui a ces caracteristiques a se diriger vers un equilibre d inscription totale des enfants a l ecole dans ces cas il s agit d un equilibre qui domine au sens de pareto tous les autres equilibres on note de plus que la redistribution de la richesse ne suffit pas pour eliminer le travail des enfants

expectation traps and discretion abstract we develop a dynamic model with optimizing private agents and a benevolent optimizing monetary authority that cannot commit to future policies we characterize the set of sustainable equilibria and discuss the implications for institutional reform we show that there are equilibria in which the monetary authority pursues inflationary policies because that is what private agents expect we call such equilibria expectation traps alternative institutional arrangements for the conduct of monetary policy which impose limited forms of commitment on the policymaker can eliminate expectation traps journal of economic literatureclassification numbers e31 e42 e50 e51 e58

parental choice of human capital investment abstract in this paper we present a model in which parents make schooling decisions for their children we compare two educational regimes public and private education in the private education regime all human capital investment decisions are made by individuals under public education the government uses income tax revenue to finance one input to schooling in the private education regime cycles may occur even though there are constant returns to scale in the augmentable factors in the public education regime there are no cycles but poverty traps may occur

confidence and the real value of money in an overlapping generations economy we demonstrate that stochastic bubbles which have a constant exogenous probability of collapsing may exist in general equilibrium on an intrinsically useless and unbacked asset money this may happen provided that the probability q that the bubble will persist next period is large enough and exceeds a threshold level q which we call the minimum rate of confidence this condition is always violated when the economy without bubble is dynamically efficient it is more likely to be satisfied in dynamically inefficient economies the larger the size of the inefficiency as measured by the excess of the growth rate over the no bubble interest rate we study both exchange and production economies

the macroeconomics of child labor regulation we develop a positive theory of the adoption of child labor laws workers who compete with children in the labor market support a child labor ban unless their own working children provide a large fraction of family income fertility decisions lock agents into specific political preferences and multiple steady states can arise the introduction of child labor laws can be triggered by skill biased technological change which induces parents to choose smaller families the theory can account for the observation that in britain regulations were first introduced after a period of rising wage inequality and coincided with rapid fertility decline

housing market spillovers evidence from the end of rent control in cambridge massachusetts we measure the capitalization of housing market externalities into residential housing values by studying the unanticipated elimination of stringent rent controls in cambridge massachusetts in 1995 pooling data on the universe of assessed values and transacted prices of cambridge residential properties between 1988 and 2005 we find that rent decontrol generated substantial robust price appreciation at decontrolled units and nearby never controlled units accounting for a quarter of the 7 8 billion in cambridge residential property appreciation during this period the majority of this contribution stems from induced appreciation of never controlled properties residential investment explains only a small fraction of the total

is there a child labor trap intergenerational persistence of child labor in brazil this article examines the intergenerational persistence of child labor empirically by looking at household survey data from brazil previous empirical work on child labor has focused primarily on isolating the determinants of child labor using survey data we take a different approach by asking does the child labor status of parents affect the child labor incidence of their children we look at this question in two ways our working assumption is that financial need creates this generational link but we also ask if there exists an intergenerational link over and above that which is transmitted through the production of income perhaps through norms we find strong evidence that this link exists and that it appears to persist even when income is held constant moreover we find that children who did not work as child laborers command higher salaries later in life which suggests that the potential human capital gains through apprenticeship as children are outweighed by the human capital gains children receive through schooling excerpt

does child labour displace schooling evidence on behavioral responses to an enrollment subsidy this brief summarizes the results of a gender impact evaluation study entitled does child labour displace schooling evidence on behavioral responses to an enrollment subsidy conducted between 1995 and 1996 in bangladesh the study observed that the subsidy increases schooling but its effect on child labour is ambiguous the subsidy increased schooling by far more than it reduced child labour substitution effects helped protect current incomes from the higher school attendance induced by the subsidy substitution effects helped protect current incomes from the higher school attendance induced by the subsidy the reduction in the incidence of child labour by boys girls represents about one quarter eighth of the increase in their school enrollment rate

will trade sanctions reduce child labour the role of credit markets abstract we examine the interaction between credit markets trade sanctions and the incidence of child labour in a two good two period model with unequally wealthy households both poverty and poor education quality inter alia are important determinants of child labour the incidence of child labour decreases as we move from the case of borrowing constraints to the case in which poor households can borrow freely from rich ones and then to the case of perfect international credit markets trade sanctions can increase child labour especially among poor households a possibility that decreases as their access to credit improves

opportunity inequality and the intergenerational transmission of child labour this paper presents a model in which opportunity differences within society result in child labour where opportunity is broadly defined but can include school quality access to higher paying jobs access to information about the returns to education and actual discrimination if opportunity differences exist child labour and poverty are shown to be symptomatic of this underlying socioeconomic condition it is then shown that policies that ban child labour and or introduce compulsory education laws can actually reduce dynastic welfare increase poverty and further exacerbate income inequality within society because they treat the symptom rather than the disease the lack of opportunity

parental altruism and inter vivos transfers theory and evidence this paper uses psid data on the extended family to test whether inter vivos transfers from parents to children are motivated by altruism specifically the paper tests whether an increase by one dollar in the income of parents actively making transfers to a child coupled with a one dollar reduction in that child s income results in the parents increasing their transfer to the child by one dollar this restriction on parental and child transfer income derivatives is derived for the standard altruism model augmented to include uncertainty and liquidity constraints these additional elements pin down the timing of inter vivos transfers the method used to estimate income transfer derivatives takes into account unobserved heterogeneity across families in the degree of altruism the findings strongly reject the altruism hypothesis redistributing one dollar from a recipient child to donor parents leads to less than a 13 cent increase in the parents transfer to the child far less than the one dollar increas

household income and child schooling in vietnam the stronger are the associations between household income and child schooling the lower is intergenerational social mobility and the less equal is opportunity this study estimates the associations between household income and children s school success in vietnam the estimates indicate that these associations are considerable this article also investigates some ways in which policies relate to household incomes school fees are progressive but school fees are only about one third of what households pay directly to schools and are a much smaller proportion of a household s total school related expenditures total household expenditures paid directly to schools increase with household income less proportionately than do school fees alone so the overall structure of such payments is less progressive than is the structure of school fees because school enrollment is positively related to household income moreover the structure of school fees is less progressive for the entire population than for the selected subset that has children enrolled in school further the two school quality measures that have the strongest positive association with children s school success are much more available to higher income households meaning that higher income households have greater school expenditures in part because they are obtaining higher quality schooling and not because charges for the same quality schooling are progressive across income classes

social security as trade among living generations we model u s social security that is legislated endogeneously by living generations specifically we consider the effects of social security on resource allocation and pareto optimality examining which generations gain from social security and whether some generations lose because saving and transfer decisions are made sequentially in the real world we use an infinite horizon overlapping generations framework in which life cycle saving and transfers to the old are determined by living agents we focus on the case in which agents are altruistic but place sufficiently greater weight on own comsumption than on the consumption of agents in other generations so that starting from a steady state without social security living agents would gain utility if consumption were shifted marginally to them from later generations excerpt

welfare implications of net social security wealth real net social wealth nssw the real present value of social security benefits received minus social security taxes paid is frequently used as a direct proxy measure for the impact of a social security system on generation welfare the present paper establishes to the contrary for a class of overlapping generation economies that nssw can be simultaneously negatively correlated with welfare for every agent in every generation more generally the paper determines the extent to which social security is needed in these economies to ensure social optimality and investigates the proper subset of economies for which nssw and generation welfare exhibit positive correlation

land use regulation and welfare we evaluate the effect of land use regulation on the value of land and on welfare our estimates are based on a decomposition of the effects of regulation into three components an own lot effect which reflects the cost of regulatory constraints to the owner of a parcel an external effect which reflects the value of regulatory constraints on one s neighbors a supply effect which reflects the effect of regulated scarcity of developable land using this decomposition we arrive at a novel strategy for estimating a plausibly causal effect of land use regulation on land value and welfare this strategy exploits cross border changes in development prices and regulation in regions near municipal borders our estimates suggest large negative effects of regulation on the value of land and welfare in these regions

is the extended family altruistically linked direct tests using micro data this paper uses panel study of income dynamics data on parents and their adult children to test the standard altruism model this model predicts that within the extended family the distribution of consumption is independent of the distribution of resources the authors findings strongly reject this prediction copyright 1992 by american economic association