Suppose that it is well known that many children work in low-skill jobs in poor

Question

Suppose that it is well known that many children work in low-skill jobs in poor country “X.” If rich country “Y” buys goods from poor country “X,” then the increase in demand for their products is large enough to raise the wages of all low-skill workers in country “X.” Because of this, a politician from country “Y” makes the following statement: “We should not buy any goods from country “X.” If we do, it will only increase the number of child laborers there.”

1. Analyze the politician’s statement using economic theory. In doing so, suppose that parents make the decisions about whether their children will work or do other things (e.g. go to school). (Hint: your answer should include something about income and substitution effects.)

2. Is there any evidence from the real world that suggests that as wages continue to rise, child labor eventually declines?

Explanation / Answer

Answer 1:

The politician's statement that "We should not buy any goods from country "X". If we do, it will only increase the number of child laborers there" is almost implementable and will benefit country "X" in many ways. But the same cannot be suggested for country "Y". The country "Y" will have to buy substitute product from another source, which will provide the goods for much higher rates.

Also, with depleting income of country "X" due to lesser demand (as suggested by politician), the parents may not afford to send children to schools. The children will find another source of income to get through this depleting income effect.

Answer 2:

The quarries in Bogota, in Columbia use low technology extraction methods. For pulverizing large rocks into the crushers and sorting them according to their sizes, children are given shovels and sieves. One fifth of those children are less than 10 years old. Some children are even aged five. With more education more demand to their work, at least 50 percent of children have started attending schools. One third of the children dislike the work and want to pursue education for betterment of their society. Most of the children live in unlawful residency settlements at the outskirts of Bogotá. Due to lack of education, their parents do not have any education or stable employment.

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