Economic Inequality and the Emergence of Child Labor Laws

This paper constructs a dynamic heterogeneous agent general equilibrium model to quantify the effects of child labor laws on human capital accumulation and the distribution of welfare. We find that the welfare consequences of a policy reform for agents depend crucially on the main source of household income. Households with large asset holdings would never support government intervention. High-wage workers benefit most from a ban on child labor, while low-wage workers benefit most from mandatory education. Utilitarian social welfare increases to a greater extent with mandatory, publicly financed education than with a child labor ban or a combination of both policies.