Education as a social agreement

This article shows that the main hypotheses used in the economic literature to explain the existence of low-skill traps are not necessary. In particular, if we relax two strong assumptions, those of perfect information in the labor market and individual homogeneity, less-developed countries may remain caught in a poverty trap even when there are not intergenerational or intertemporal spillovers, intersectoral complementarities, increasing returns to scale or credit market imperfections. Due to the lack of coordination among workers, the role played by some institutions such as universities or unions in escaping the trap becomes crucial. A numerical calibration of the model supports our conclusions.