Child labor and coordination failures

In this note, we show that a technology-based coordination failure may explain the emergence of laws restricting child labor. Child labor may arise because of the lack of a coordination mechanism between parental decisions to invest in the human capital of their children and firms' decisions to invest in skill-biased technologies. Legislative intervention in many cases helps coordinate expectations towards a Pareto-superior outcome with investments both in human capital and in skill-biased technologies. (C) 2001 Elsevier Science B.V. All rights reserved.