Child Labor and Globalization

Elias Dinopoulos and Laixun Zhao
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Elias Dinopoulos: Department of Economics, University of Florida, USA

No 198, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: The paper embeds child labor in a standard two-sector general-equilibrium model of a small open economy facing perfectly competitive markets, efficiency wages, and free-trade. The modern sector produces a homogeneous good using skilled adult labor and capital, and offers effort-based efficiency wages. The agrarian (traditional) sector produces a homogeneous good using unskilled (child and adult) labor and skilled adult labor, and offers nutritional efficiency wages to child workers. Nutritional efficiency wages introduce wage stickiness and transform the economy into a dual one with unlimited supply of child labor. Trade policies that increase the output of the modern sector reduce the incidence of child labor and the dispersion of wages between adult skilled workers and unskilled workers. Emigration of skilled adult workers reduces the incidence of child labor, whereas emigration of unskilled adult workers has the opposite effect. Domestic subsidies that reduce the child wage increase the incidence of child labor; and a ban on child-labor benefits unskilled adult workers but hurts skilled adult workers.

Keywords: Child-labor; Efficiency wages; Wage income inequality; Globalization; Direct foreign investment (search for similar items in EconPapers)
JEL-codes: F1 J3 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2006-12
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Persistent link: https://EconPapers.repec.org/RePEc:kob:dpaper:198

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