GCOE Discussion Paper Series
Global COE Program

Human Behavior and Socioeconomic Dynamics
Discussion Paper No.23

The worst forms of child labour:
dynamic model and policy implication

Kouki Sugawara

December 2008

GCOE Secretariat
Graduate School of Economics

OSAKA UNIVERSITY

1-7 Machikaneyama, Toyonaka, Osaka, 560-0043, Japan

The worst forms of child labour:
dynamic model and policy implication
Kouki Sugawara∗†

Graduate School of Economics, Osaka university, 1-7 Machikaneyama, Toyonaka 560-0043, Japan

March 2008

Abstract
This paper analyzes an overlapping generations model including some types of child labour. We
find that the worst forms of child labour may emerge at a low level of human capital after taking into
account two factors. The first is that the level of parental human capital causes differences in family
income; the second is that parents make their children engage in either type of child labour or schooling. We also demonstrate the human capital dynamics and show the possibility of the emergences ofa poverty trap given the worst forms of child labour, the high incidence of working children and thelow level of human capital. The paper concludes with some implications for child labour policy.
JEL classification: J13; O11
Keywords: worst forms of child labour; Human capital∗

Tel.: +81-6-6850-6111.
E-mail address: dg025sk@mail2.econ.osaka-u.ac.jp†
I am very grateful to Koichi Futagami for his considerable help. I have also benefited from comments and suggestion by
Yoshiyasu Ono, Makiko Hino and participants at the Autumn 2008 meeting of the Japanese Economic Association. Of course,
any remaining errors are mine.

11Introduction

Child labour has existed for some time, as well evidenced in Britain before and after the Industrial Revolution. For example, in preindustrial England and Wales, the proportion of children aged between 5 and14 years in the workforce was 36.6 percent. In 2002, the child labour ratio is 19 percent in Asia and thePacific, 16 percent in Latin America and the Caribbean, 29 percent in Sub-Saharan Africa, and 15 percent
in the Middle East and North Africa (Statistical Information and Monitoring Programme on Child Labor (SINPOC)). Though the Industrial Revolution, Marshall (1890) pointed out the fear that child labour
impeded an opportunity of evaluation of children’s future quality because it was educationally valueless. Since 1973 when the International Labour Organization (ILO) defined “child labour” in Convention
138, many researchers have investigated and argued about the psychological and physical effects of childlabour.1
Currently, policy discussion of child labour in some developing countries has changed from one ofincidence to the types of child labour. This is especially because the ILO banned the worst forms of childlabour in 1999 in Convention 182 as follows. “The term the worst forms of child labour comprises:(a) all
forms of slavery or practices similar to slavery, such as the sale and trafficking of children, debt bondage
and serfdom and forced or compulsory labour, including forced or compulsory recruitment of children
for use in armed conflict; (b) the use, procuring or offering of a child for prostitution, for the productionof pornography or for pornographic performances; (c) the use, procuring or offering of a child for illicit
activities, in particular for the production and trafficking of drugs as defined in the relevant international
treaties; (d) work which, by its nature or the circumstances in which it is carried out, is likely to harm thehealth, safety or morals of children.”In addition, the Organization for Economic Co-operation and Development (OECD) (2003) presented
some observations of the harmful psychological and physical impact of child labour on children. For example, the Chocolate Manufactures Association and the U.S.Congress identified cases of child labour inWest African Cocoa farms, and adopted the Harkin–Engel protocol for its eradication in 2001. Similarly,
the ILO (2002) reported that ten-years-old girls were being driven into prostitution from poverty in Tanzania, Nepal and Jamaica. We therefore construct a dynamic model to consider how the worst forms ofchild labour emerge. We then suggest the policy implication of the model in the aspect of economics.
Dessy and Pallage (2005) develop a static model including the worst forms of child labour and obtain
1

See Basu (1999) for a very useful survey of the economic arguments on child labour.

2interesting and beneficial results. They conclude that a ban on child labour leads to a deterioration in
welfare because the wages of child labour play an important role in family incomes in poor economies.
Basu and Chau (2004) analyze debt bondage included in the ILO Convention 182 in some developing
countries. Rogers and Swinnerton (2008) propose the analysis of exploitative child labour. They showthat the policy intervention of observing and controlling firms exploiting children has a Pareto improving
effect.2
In this paper, we augment Dessy and Pallage’s (2005) study by conducting a dynamic analysis withhuman capital. Child labour has negative effects on educational achievement because it actually imposes
psychological, physical and temporal burdens. For example, Jensen and Nielsen (1997) provide evidenceof a trade off between child labour and educational level in Africa. Psacharapoulos (1997) and Patrinos
and Psacharapoulos (1997) provide similar evidence for Latin America. In this manner, the worse types
and high levels of child labour impede economic growth. Therefore, we should consider a dynamic modelusing human capital theory.
This paper analyzes how the level of human capital in the economy decides the incidence and types ofchild labour by using a two-period overlapping generations model. Each parent makes decisions on family
consumption and their children’s activities, either the enforcement of labour or the taking of education.
We assume that parents derive their utility from family consumption and the level of human capital of
their children. On the one hand, parents have an incentive to engage children in the higher incidence andworse types of child labour to obtain more money. On the other hand, engaging children in education can
increase their human capital. Since both the level and types of child labour has a trade off with the levelof educational achievement, parents determine their children’s activity according to their family income
as decided by the level of human capital of the parents.
The main findings of the analysis are as follows. In an economy with a low level of human capital,
the worst forms of child labour emerge, the incidence of child labour is high, and the level of schoolingis low. In an economy with a sufficiently high level of human capital, the worst forms of child labour
vanish, the incidence of child labour is low, and the level of education is high. We also demonstrate thepresence of multiple equilibria and the possibility of a poverty trap in this model.3 The rate of human2

For a general discussion of the theoretical problem of child labour, see Basu and Van (1998) and Baland and Robinson(2000) and Dessy (2000), Hazan-Berdugo (2002) and Strulik (2005) for dynamic analysis.
3
See Azariadis and Drazan (1990) for the modeling and empirical evidence of a poverty trap where human capital remains
at a low level. See Galor and Zeira (1993) for a model with multiple equilibria involving a poverty trap as a result of credit
constraints and Blackburn and Cipriani (2002) for an analysis of endogenous longevity in establishing the existence of multiple
equilibria.

3

capital accumulation is slower at a low level of human capital because of the low level of educational
achievement caused by longer working hours and the worst forms of child labour. Conversely, the rateof human capital accumulation is faster at a high level of human capital because of high educational
achievement associated with shorter working hours and good forms of child labour. Thus, the multiple
equilibria are history-dependent: the first is a steady state with a low level of human capital, and thesecond is a steady state with a high level of human capital.
This paper is organized as follows. Section 2 develops the model. Section 3 characterizes the equilibrium of the incidence and choice of the types of child labour given the level of human capital. Section 4analyzes the human capital dynamics. Section 5 provides the policy implications and Section 6 concludes.

2

The Model

Consider a two-period overlapping generations model in which a continuum of one unit of identicalagents is born in every period. The population in the economy is constant and each household consistsof one child and one parent. An agent born in period t, referred to as generation t, lives for two periods:
childhood for period t and adulthood for period t + 1. Generation t is endowed with one unit of timein childhood for period t. Their parents, generation t − 1, allocate this time endowment between work,
ltZ , and education, τt , that enables the accumulation of human capital, ht+1 . We assume that children canwork in either a general form that is non-harmful to them, ltA or the worst forms that are harmful to them,ltB . Therefore, the time constraint in childhood is given by:
1 = ltZ + τt , Z = A, B.

(1)

The above equation shows the trade off between child labour and education during childhood. Generationt is also endowed with one unit of time in adulthood for period t + 1. We assume that the parents spend
all of their time in labour supply given their accumulated human capital.
We consider the firms as perfectly competitive profit maximizers. We assume that the firms are separated into two sectors: a general sector, YA , and a sector of the worst forms of child labour, YB . The
former sector produces goods by using both child labour in its good form and adult labour. However,while the children use only unskilled labour, the adult generations use human capital. The latter sector
produces goods by using child labour in the worst forms. We assume that both sectors have linear pro-4

duction functions in which the constant productivity of each production factor is wA and wB . Dessy andPallage (2005) provide a well-informed survey on the phenomenon that the enormously high wages of
prostitution, deep-sea fishing and criminal activity compel children to work in these worst forms of childlabour. For example, girls aged 14–16 years engaged in prostitution can earn a median income of about
US 53 in Republic of the Philippines while the wages of young prostitutes in Jamaica are between 40
and 150 times higher than the hourly wage rate in blue-collar manufacturing employment. Hence, we
also assume that child labour draws higher wages in the worst forms sector than in the general sector,
wA < wB . The production function of these firms is expressed by:
YA = wA (ltA + ht ),(2)

YB = wB ltB .

(3)

In this model, the human capital level, ht+1 , that generation t uses to produce goods in adulthoodis predetermined in period t. Following Dessy and Pallage (2005), we assume that not only education
but also child labour promotes the level of human capital because of learning-by-doing. To simplify the
analysis, we assume that the human capital accumulation function is specified by:

ht+1 = φZ ltZ + ητt + 1, Z = A, B ,(4)where φZ and η express the levels of learning-by-doing and an educational time, respectively. The third
term on the right-hand side, the constant number one, represents the adjusted innate ability of humanbeings.4 We make the following assumption about the effect on accumulation of children’s human capitalby working in each form:
Assumption 2.1

φB < φA < η.
Boyden et al. (1998) provides some evidences that some kinds of child labour have the effect of raising
human capital through learning-by-doing. However, child labour in its worst forms disturbs educational
achievement owing to the psychological and physical harm it impacts on children (ILO, 2002). The firstinequality indicates that child labour in its worst forms deteriorates the level of human capital accumu4

We assume that agents in childhood use one unit of innate human capital when they work in the general sector.

5lation more than in the general form. The second inequality shows that schooling is more productive inhuman capital accumulation than learning-by-doing.
The adult consumption of generation t, ct+1 , is based on their own wage income that they earn in firms
using their human capital, wA ht+1 , and their children’s wage income, which they earn in either the general
Z . Thus, the budget constraint for an adult agent of generation t is given
sector or the worst sector, wZ lt+1

by:Z
ct+1 = wA ht+1 + wZ lt+1.

(5)

We assume that the lifetime utility of generation t is derived from consumption in adulthood, ct+1 , andthe altruism of children indicated by the observable human capital level of children, ητt + 1. The altruism
consists of this form for the reason that parents in the period t + 1 (generation t) cannot observe theadulthood consumption of children, ct+2 and the human capital appended by the externality of learningby-doing, φZ ltZ . We also assume that each agent has a utility function of a logarithmic form. Thus, thelifetime utility function of generation t is:

U t = log ct+1 + β log(ητt+1 + 1),

0 < β < 1,(6)where β expresses as the degree of altruism for human capital level of their children.
Parents make decisions about their children’s activity that encompasses each type of child labour or
schooling in childhood. Therefore, agents of generation t choose each variable of family behavior toZ ,maximize their own utility in period t + 1. They make decisions about the activity of their children, lt+1

because parents determine family behavior as a whole. Thus, the optimization problem of generation t
becomes:t
Z
max Ut+1= log ct+1 + β log[η(1 − lt+1
) + 1],

ct+1 ,lZt+1



Z


ct+1 = wA ht+1 + wZ lt+1






Z + η(1 − lZ ) + 1
s.t. 
ht+2 = φZ lt+1

t+1






Z
 0
≤ lt+1≤ 1.

6

Z is given by:
The first-order condition with respect to lt+1βηwZ−
S 0 (with equality i f 0 < łzt+1 < 1).
ZZ )+1
wA ht+1 + wZ lt+1 η(1 − lt+1

(7)

The first term on the left-hand side of (7) represents the marginal benefit of consumption by an increasein childhood working time by decreasing education time. The second term represents the marginal cost
Z is obtained as anof child labour become it lowers the educational level. When the optimal choice of lt+1
Z reaches its upper limit,
interior solution, this first-order condition holds with strict equality. When lt+1

1, this first-order condition holds with strict inequality; that is, the left-hand side of (7) has a negative
Z reaches its lower limit, 0, this first-order condition holds with a less-than sign; that is, thesign. When lt+1

left-hand side of (7) has a positive sign.

3

The choice of incidence and types of child labour

In this section, we characterize the equilibrium choices of the parents under a given level of human capital.
In particular, we analyze the type of child labour parents choose.
When the human capital level is sufficiently low, and the incidence of child labour reaches its upperbound of 1, we obtain the following inequality using (7):ht+1 <wZ (1 − βη)≡ ĥZ .
ηβwA

(8)

In this case,5 child labour reaches its upper bound because parents cannot afford to send their children
to school and family income depends crucially on the wage income of their children because of the low
parental income. On the other hand, when the human capital level is sufficiently high, and the family
income does not need to depend on child labour, then we obtain the following inequality by using (7):ht+1 >wZ (1 + η)
≡ h̄Z .
ηβwA

(9)We can obtain the supply function of child labour depending on the parental human capital by using (7),5This border value, ĥZ , increases with a decrease in each of two factors. The first factor consists of the proportion of the
productivity of each child labour to the productivity of the adult human capital. The second factor consists of the degree of
altruism for the child and the efficiency of education. The greater this border value, the slower the incidence of child labour
takes off from the upper bound.

7

(8), (9):

Z
lt+1






=1














 wZ (η + 1) − ηβwA ht+1=η(1 + β)wZ















 =0

i f ht+1 ≤ ĥZ .

i f ĥ < ht+1 ≤ h̄Z .

(10)i f h̄Z < ht+1 .

Figure 3.1 depicts the equilibrium values of child labour given the level of human capital.
Child labour decreases with an increase in the level of adult human capital because parents care aboutchild human capital and start to prefer the quality of their children rather than their quantity due to thehigh wage income of adults when human capital in the economy is slightly high (ht+1 > h̃). In addition,
if the parents engage their children in the worst forms of child labour, the children would have greater
working time than the general form, given the same level of human capital, because of the differences inwages between the types of child labour, wA < wB .
We derive the incidence of each type of child labour given the level of human capital. In which typesof child labour do parents engage their children under a given human capital level? To explore this choice,we compare the utility levels of the two types of child labour. To obtain the indirect utility function, we
first calculate the consumption level of each family using (5) and (10):Z
ct+1 = wA ht+1 + lt+1wZ =1wZ (η + 1)
[wA ht+1 +].
(1 + β)η(11)This shows that consumption of the parents increases with the human capital level and the wages of both
sectors. We can next obtain the following indirect utility function using (6), (10), and (11):V Z = (1 + β) log(wA ht+1 +wZ (η + 1)
) − β log wZ − R, R ≡ β log βη − (1 + β) log β(1 + β).
η(12)Let the difference in the utility levels of parents be Φ(ht+1 ):Φ(ht+1 ) ≡ V A − V B , Φ(h̃) = 0.

(13)

Each family engages their children in the general sector if Φ(ht+1 ) takes a positive value, and engages

8their in the worst forms if Φ(ht+1 ) takes a negative value. Φ(ht+1 ) becomes the following:AB

Φ(ht+1 ) ≡ V − V = (1 + β) log[

wA ht+1 + wA (η+1)η
wA ht+1 + wB (η+1)η] − β log[

wA
].
wB

(14)

Hence, this model proposes that the wage differentiate between both sectors, wwAB , is an essential factor of
emergence of child labour in the worst forms, as in the above function.
Firstly, there exists a level of human capital at which parents become indifferent between the two
types of child labour. We denote this level as h̃:Φ(h̃) = (1 + β) log[wA h̃ + wA (η+1)η
wA h̃ + wB (η+1)η] − β log[

wA
] = 0.
wB(15)

We can easily solve h̃ as follows:h̃ ≡1(η+1) wA − 1+β− 1)η (( wB )β(1 − ( wwAB ) 1+β )

.

(16)

Differencing Φ(ht+1 ) with respect to ht+1 results in:wAwA∂Φ= (1 + β)[−] > 0,(η+1)∂ht+1
wA ht+1 + wA
wA ht+1 + wB (η+1)

(17)

∂2 Φ
< 0.
∂h2t+1(18)

ηη

The worst forms of child labour emerge if parental human capital is low, ht+1 < h̃. But they disappear
if parental human capital is sufficiently high, ht+1 > h̃. Furthermore, two factors induce parents to engage
their children in the worst forms of child labour. First, when the relative wage, wwAB is higher, the greater the
incentive for parents to force their children to work in the worst forms of child labour.6 The second factor
6

We can confirm this feature with the following derivation:
−2−β

∂h̃
=
∂ wwAB

1
−1
1
(η+1)
1 wA 1+β
1 wA 1+β wA − 1+β[− 1+β( wB )(1 − wwAB )− 1+β ) + 1+β( wB ) (( wB )
− 1)]
η
β

.

(1 − ( wwAB ) 1+β )2

As arranging the denominator on the right-hand side of above function, we can express the following inequality:(−2
wA 1+βwA −βwA) [(1 + β)(1 − ( ) 1+β ) − β ] < 0.
wB
wB
wB

9

is the educational efficiency parameter, η. If η increases, the opportunity cost of child labour increases
more in its worst forms than in the general forms because η represents the opportunity cost of child labour,and wages of the worst forms are higher than the general forms, wA < wB . Fig 3.2 depicts the Φ(ht+1 )function and the shift resulting from the increase in the relative wage, wwAB , and η.

4

The dynamics of human capitalIn this section, we examine the dynamics of human capital and the dynamic transition of child labour.
In this model, the level of adult human capital is decided by two factors: the educational level duringchildhood and learning-by-doing through child labour.
We can obtain the dynamics of human capital by using the accumulation function of human capital
Z , as derived from section 3.
(4) and the equilibrium value of lt+1

ht+1





= φZ + 1






 (φZ + β)wZ (η + 1) + ηβwA ht+1 (η − φZ )=η(1 + β)wZ






 =η+1i f ht ≤ ĥZ .
i f ĥZ < ht ≤ h̄Z .

(19)

i f h̄Z < ht .

We draw the phase diagram of human capital in the same dimensions as Figures 4.1 and 4.2. We define
the steady state of the level of human capital as hB when parents engage children in the worst forms ofchild labour.
Figure 4.1 demonstrates the case of a unique steady state. If hB < h̃, parents engage their children
to work in the general forms of child labour even at the relatively low level of parental human capital.
Therefore, the accumulation of human capital accelerates at a low level of human capital because changes
in the forms of child labour strengthen the learning-by-doing effect. In addition, investment in the educational level of children increases with parental human capital. If this process is sustainable, the economy
converges to a unique steady state with a high level of human capital, child labour vanishes, and the educational level reaches its upper bound. On the other hand, Figure 4.2 demonstrates the case of multiple
steady states. If hB > h̃, parents cannot afford to engage the children to work in the general forms ofchild labour in the low level of parental human capital. Therefore, accumulation of the human capital isslower at a low level of human capital. Hence, when the economy starts from a low human capital level(h ≤ hB ), the educational level becomes low and the parents engage their children in the worst forms ofchild labour. If this process is sustainable, the economy converges to a steady state with a low human10capital level: the worst forms of child labour appear, child labour exists at a high level and the educational
level reaches its lower bound. Conversely, if the economy starts from a high human capital level (h > hB ),the economy converges to a steady state with a high human capital level.
Thus, we represent the possibility of the poverty trap given the following circumstances: the appearance of the worst forms of child labour, the high incidence of child labour and a low level of humancapital.

5

Policy Analyses

5.1

Regulation of worst forms or trade sanctions

We now discuss policies that can restrain the worst forms of child labour. In this subsection, we analyze
the regulation of firms employing children in the worst forms and the trade sanctions against products
produced using the worst forms. The standard policy for restraining child labour is that governments
impose a fine on firms employing children. For example, the Indian government charges a fine between
Rs 10,000 and Rs 20,000 on firms (Basu (2005)). Similarly, the Thai government charges a fine of
200,000 baht or less or below 1-year sentence or less for any person or firm employing children aged lessthan 15 years. We assume that p represents the probability that the government detects firms employing
children in its worst forms and F(ltB ) represents the amount of the fine given the incidence of child labour,
respectively. We also assume that the government transfers the fine to households as lump-sum subsidies,T t = pF(ltB ). The profit maximization problem for the sector employing the worst forms of child labour
is given by:max ΠB = YB − w̄B ltB − pF(ltB ).
ltB

(20)

The first-order condition with ltB is given by:∂ΠB= wB − w̄B − pF 0 (ltB ) = 0,
B
∂lt

(21)

where w̄B represents the wage rate in the child labour market for the worst forms.
We investigate the market for the worst forms of child labour to examine the effect of governmental
regulation in the case where the worst forms of child labour exist before government policy. Fig 5.1

11

depicts the labour market equilibrium and the effect of governmental regulation. The labour supply curveis represented by S CBAS in Figure 5.1, along with the given level of human capital, ht+1 , and the wagesof the general sector, wA , before the government imposes the fine by using the above function (10) that
represents the incidence of child labour engaged by the households and the function (14) that represents
the choice of types in child labour. The labour supply curve contains three segments. The first segment,
S C, referred to as regime A, shows that the worst forms of child labour vanish with a certain level of wages
because families shift the children from the worst sector to the general sector. The second segment, BA,
shows that the incidence of labour increases with an increase in the wage. The third segment, AS , depicted
as the vertical line, indicates that the incidence of labour reaches its upper bound, 1, because the wages
are very high. On the other hand, the labour demand curve is readily depicted by the horizontal line, DD,
because we assume that the productivity of the firm is linear. The labour market equilibrium of wages andthe incidence, dot E in fig5.1, is decided by the crossing point of these two curves.
Now, we examine the effect of governmental regulation in Figure 5.1. The labour supply curve does
not change after the government imposes the fine. However, the labour demand curve bends downward,w̄B = wB − pF 0 (ltB ) by using (21). The fine makes the marginal productivity of firms fall with an increasein the incidence of labour. This curve is depicted as DD0 . Therefore, the labour market equilibrium ofwages and the incidence changes from dot E to dot E 0 . Most probably, the possibility exists that the worst
forms of child labour vanish in economies with a sufficiently high level of human capital because thewage level reaches Regime A. Thus, both the possibility of detecting child labour, p, and the amount of
the fine, F, reduce the wages of child labour in its worst forms. Furthermore, these regulations lower thelevel of human capital where the worst forms of child labour emerge, h̃, as in function (14). For the same
reason, a trade sanction against goods produced using the worst forms of child labour also brings down
wages because firms shift the excrescent costs of trade sanctions (e.g. taxes or escaping checks) to thewages of children.
Consequently, a decrease in child labour wages in its worst forms converts children into general formsof child labour. In addition, there is the probability that these policies have the effect of pushing somecountries into a poverty trap because of the shift in h̃, as per the phase diagram in Figure 4.2. However,
the welfare of households engaging children in the worst forms of child labour because of low family
income decreases with regulation or trade sanctions. Therefore, we need to deal carefully with policies
bringing down wages to reduce the incidence of child labour in its worst forms.

12

5.2

Educational policy

We discussed earlier that educational efficiency affects the incidence of child labour in its worst forms
in Section 3. For example, the OECD (2003) argues that the efficiency of schooling correlates with theattendance rate. In this subsection, we argue that educational policy affects educational efficiency.
We introduce government spending, a per-capita tax paid for the educational sector. The governmental
budget constraint is T t = Et where T t represents the per-capita tax and Et represents the amount ofinvestment in the educational sector. We change the household budget constraint and the human capital
accumulations as follows:Z
ct+1 = wA ht+1 + wZ lt+1
− T t+1 ,(22)

ht+1 = φZ ltZ + η(T t )τt + 1.

(23)

We assume that educational efficiency, η(T t ), is decided by the amount of investment in the educational
sector and η(0) > φA , η0 (T t ) > 0 η00 (T t ) < 0.
In this case, governmental intervention has an ambiguous impact on the incidence and the choice ofthe types of child labour. This is because two factors affect each household’s decision. The first is theincome effect of a decrease in family incomes through the increase in T t . This causes the greater incidenceof child labour and households choosing more of its worst forms. The second is the substitution effectof a decrease in the relative value of child labour given high educational efficiency. This effect causes acontrary result to the income effect. In this manner, the government also deals with this policy carefully.

6

Conclusion

This paper analyzes the cause of the worst forms of child labour in an overlapping generations model.
The incidences of child labour increase with a decrease of parental human capital. Additionally, parents
with a low level of human capital engage children in the worst forms of child labour. Therefore, humancapital stays at a low level and a poverty trap emerges. Thus, we construct a model of an actual conditionin which some poor families in developing countries have no choice but to engage children in the worst

13

forms of child labour.7 We also find that important factors bringing about the worst forms of child labour
are wage differentiation and the efficiency of education. These factors play an important role in the policy
implications for the worst forms of child labour. We conclude that some countries in poverty traps need tobe pushed out using policies such as fining the use of child labour or educational improvements. However,
the government has to take care not to starve the peoples more at the same time.

References[1] Azariadis, C. and A. Drazen, (1990), Threshold externalities in economic development. Quarterly
Journal of Economics. 105(2), pp.501–526.
[2] Baland, J.M. and J.A. Robinson, (2000), Is child labor inefficient? Journal of Political Economy.
108(4), pp.663–679.
[3] Basu, K. and P.H. Van, (1998), The economics of child labour. American Economic Review. 88(3),pp.412–427.
[4] Basu, K., (1999), Child labour: Cause, consequence, and cure, with remarks on international labour
standards. Journal of Economic Literature. 37(3), pp.1083–1119.
[5] Basu, A.K. and N.H. Chau, (2004), Exploitation of child labor and the dynamics of debt bondage .
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7

For example, Rialp (1993) reported that children working in hazardous forms of child labour draw an enormously highwage, and family income mostly depends on child wages in the Philippines.

14[10] Galor, O. and J. Zeira, (1993), Income distribution and macroeconomics. Review of Economic Studies. 60(1), pp.35–52.
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15

Z
lt+1

η+1
η(1+β)

1

A
lt+1

B
lt+1

h̄A

ĥA ĥBh̄B

ht+1

fig3.1Φh̃0t+1

h̃t+1

ht+1

0

fig3.2 The Φ(ht+1 ) function and increases in the relative wage, wwAB , and η.

16

45◦

ht+2

lA
1+η

lB

hB
h̃
fig4.1 The phase diagram in the case of h̃ < hB

ht+1

45◦

ht+2

lA
1+η

lB

hB
h̃
fig4.2 The phase diagram in the case of h̃ > hB

17

ht+1

w̄B
S

supply curve
A

E

wB D

E0
B

C

D
demand curve
be f ore the reguration

D0
demand curvea f ter the reguration

Regime AS
01
fig5.1 The market for the worst forms of child labour

18B
lt+1