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Child Labor, Monopsony, Farm Business, Overpopulation
Arthur Lewis (1954) classic article on duel labor markets suggests that subsistence labor, due to high fertility and overpopulation, causes low wages. Basu (1999) and Dessy (2000) show a compelling theory for high fertility in developing countries where regions go into a poverty trap of low labor demand, low wages and overpopulation. An alternative explanation for overpopulation has to do with a simple farm business model where farming families have a labor monopsony for their own child labor. Child labor, not from society at large but from the farm family’s own children, can be a source of labor to run a farm business. The farm business model shows how, due to simple monopsony characteristics, it may be cheaper for a farmer to use fertility induced, family child labor, rather than expensive non-family labor, to provide his labor supply and increase his rent. Children can provide the farmer with labor that has a psychological barrier to exit, making it easy to add human capital without paying a high wage. However, due to sibling rivalry and child psychological growth stages of binding, delegating and expelling, older children will be forced to leave the farm inducing greater fertility to replace them. We assume capital investment options and the use of technology are limited for such farms due to monsoon rainy seasons, dense forests or steep hills, which suggests the need for labor intensive farms. The end result is that child labor is a way to provide significant profit to a farm business.