Working versus schooling: The impact of social expenditure

Abstract

We develop a theoretical model where child labour results from a household's trade-off between sending a child to school or to work. Education is considered as a risky investment, since the survival of the child is not certain. We explore the effects of public expenditure on education and health on child labour, specifying a transmission mechanism for each kind of spending. On the one hand, we establish that health expenditure reduces child labour all the more as child mortality rate is high. On the other hand, a moderate aversion to risk is a necessary condition for education expenditure to reduce child labour. Our theoretical results are empirically validated on panel data from 66 developing countries between 1985 and 2000.