A theory of exploitative child labor

We develop a model in which some child labor is exploitative. Since exploited child laborers are paid less than the value of the marginal product of labor, there is scope for policy intervention to be Pareto improving. We illustrate this by showing that a system of inspection and fines targeted on exploitative child labor increases the aggregate output produced by children. We also establish that such intervention secures the release of children from exploitative working conditions, to their benefit. The distributional implications of the intervention among employers and among children who had not been exploited depends on whether capital is mobile internationally, and can depend on whether the elimination of exploitative child labor is partial or complete.