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Literacy Traps: Society-wide Education and Individual Skill Premia

Author

Listed:
  • Atal, Vidya

    (Cornell University)

  • Basu, Kaushik

    (World Bank)

  • Gray, John

    (Cornell University)

  • Lee, Travis

    (Cornell University)

Abstract

Using a model of O-ring production function, the paper demonstrates how certain communities can get caught in a low-literacy trap in which each individual finds it not worthwhile investing in higher skills because others are not high-skilled. The model sheds light on educational policy. It is shown that policy for promoting human capital has to take the form of a mechanism for solving the coordination failure in people’s choice of educational strategy.

Suggested Citation

  • Atal, Vidya & Basu, Kaushik & Gray, John & Lee, Travis, 2009. "Literacy Traps: Society-wide Education and Individual Skill Premia," IZA Discussion Papers 4047, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp4047
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    1. Jorge Saba Arbache & Andy Dickerson & Francis Green, 2004. "Trade Liberalisation and Wages in Developing Countries," Economic Journal, Royal Economic Society, vol. 114(493), pages 73-96, February.
    2. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 551-575.
    4. Jean Drèze & Geeta Gandhi Kingdon, 2001. "School Participation in Rural India," Review of Development Economics, Wiley Blackwell, vol. 5(1), pages 1-24, February.
    5. Enrico Moretti, 2004. "Workers' Education, Spillovers, and Productivity: Evidence from Plant-Level Production Functions," American Economic Review, American Economic Association, vol. 94(3), pages 656-690, June.
    6. Richard Arnott & Bruce Greenwald & Ravi Kanbur & Barry Nalebuff (ed.), 2003. "Economics for an Imperfect World: Essays in Honor of Joseph E. Stiglitz," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012057, December.
    7. Azam Mehtabul, 2010. "India's Increasing Skill Premium: Role of Demand and Supply," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-28, October.
    8. Benjamin F. Jones, 2008. "The Knowledge Trap: Human Capital and Development Reconsidered," NBER Working Papers 14138, National Bureau of Economic Research, Inc.
    9. Rauch James E., 1993. "Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities," Journal of Urban Economics, Elsevier, vol. 34(3), pages 380-400, November.
    10. Majumdar, Mukul & Mitra, Tapan, 1982. "Intertemporal allocation with a non-convex technology: The aggregative framework," Journal of Economic Theory, Elsevier, vol. 27(1), pages 101-136, June.
    11. Michael Kremer & Edward Miguel & Rebecca Thornton, 2009. "Incentives to Learn," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 437-456, August.
    12. Roland Benabou, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 619-652.
    13. W. Davis Dechert & Kazuo Nishimura, 2012. "A Complete Characterization of Optimal Growth Paths in an Aggregated Model with a Non-Concave Production Function," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 237-257, Springer.
    14. Arnott, Richard J. & Greenwald, Bruce & Kanbur, Ravi & Nalebuff, Barry, 2003. "Joseph Stiglitz and Economics for an Imperfect World," Working Papers 127202, Cornell University, Department of Applied Economics and Management.
    15. Redding, Stephen, 1996. "The Low-Skill, Low-Quality Trap: Strategic Complementarities between Human Capital and R&D," Economic Journal, Royal Economic Society, vol. 106(435), pages 458-470, March.
    16. Mukul Majumdar & Tapan Mitra, 1995. "Patterns Of Trade And Growth Under Increasing Returns: Escape From The Poverty Trap," The Japanese Economic Review, Japanese Economic Association, vol. 46(3), pages 207-223, September.
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    Cited by:

    1. Gerhard Toews & Alexander Libman, 2017. "Getting Incentives Right: Human Capital Investment and Natural Resource Booms," Working Papers 370, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    2. Vidya Atal, 2017. "Say at home, or stay at home? Policy implications on female labor supply and empowerment," Review of Economics of the Household, Springer, vol. 15(4), pages 1081-1103, December.

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    More about this item

    Keywords

    education; literacy; O-ring; skill formation; traps;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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