The Macroeconomics of Child Labor Regulation

PWP-CCPR-2003-032

Abstract

We construct a dynamic general equilibrium model with endogenous policy choice to analyze the adoption of child labor laws. The key mechanism in our model is that parents’ decisions on family size interact with their preferences for child labor regulation. If policies are endogenous, multiple steady states with different child labor policies can exist. Consistent with empirical evidence, the model predicts a positive correlation between child labor, fertility, and inequality. In addition, the theory implies that the political support for regulation should increase if a rising skill premium induces parents to choose smaller families. The model replicates features of the history of the U.K. in the nineteenth century, when regulations were introduced after a period of rising wage inequality, and coincided with rapidly declining fertility rates and an expansion of education.