Comparative advantage is a principle of economics that is significant for children because it proves that even if, because of their lesser quantity or quality of knowledge, skill, experience, physical strength, and other attributes, they are less efficient at every kind of productive activity relative to an adult, they can still make valuable contributions to their households and the larger economy. For example, consider a situation in which an adult is a freelance computer programmer who earns $200/hour at his job. His young son is relatively small, weak and awkward at handling a rake, and therefore requires four hours to rake up all the leaves in the backyard, while his father would only require two hours to do the same job.
Furthermore, the boy does not know how to program a computer. Thus, his father is better at every task in this scenario than he is. This is known as an absolute advantage.
Regardless, it still benefits the father monetarily if he hires his son to rake the leaves at any rate of less than $100/hour. Suppose, for instance, his son demands $40/hour. The father's alternatives are then:
- Spend two hours raking up leaves, and neither earn any money nor spend any money; or
- Hire his son to spend four hours raking up the leaves at a wage rate of $40/hour, for a total wage of $160. Meanwhile, the boy's father spends the two hours he would have spent raking leaves programming computers for $200/hour, for a total wage of $400.
The second options leaves the father $240 richer than he would have been had he chosen the first option. This shows that even if a child may require more time than a grown-up to do a given job, because of his inefficiency compared to a more knowledgeable, skilled, experienced, and strong adult, it still may be to the adult's advantage to hire the child rather than do the work himself. This suggests that there could be major gains to be realized by legalizing child labor.
In addition to the child labor laws, the minimum wage is a serious impediment to children's being able to make use of their comparative advantage because it forces the least efficient workers out of the market.