Dual Poverty Trap: Intra‐ and Intergenerational Linkages in Frictional Labor Markets

Abstract

This paper constructs an overlapping generations model with a frictional labor market to explain persistent low education in developing countries. When parents are uneducated, their children often face difficulties in finishing school and therefore are likely to remain uneducated. Moreover, if children expect that other children of the same generation will not receive an education, they expect that firms will not create enough jobs for educated workers, and thus are further discouraged from schooling. These intergenerational and intragenerational mechanisms reinforce each other, creating a serious poverty trap. Escape from the trap requires the well-organized and combined implementation of a subsidy for schooling, the provision of free education, support for disadvantaged children, and public awareness programs. JEL Classification Numbers: O11, J62, J23.

Generational Bargain, Transfer of Disadvantages and Extreme Poverty: A Qualitative Enquiry from Bangladesh

“…Quran in Muslim families) is perceived to be sufficient education and deemed more valuable than formal schooling. The present analysis partly confirms Horii and Sasaki's (2012) findings that households rationally anticipate that the benefits from education for poor children and their families will be low because children will not be given access to well-paid jobs and remain discriminated against because of their socioeconomic background. However, this data also shows that children who have had some level of education tend to have access to supportive social networks that generate benefits for the entire household.…”

“…Children of uneducated parents find it difficult to continue their education (Behrman et al 2017). It has also been argued that it is the education rather than economic status of parents which is more important in determining whether the children of the household go to school (Horii and Sasaki 2012). In extreme poor households, choosing to send children to school is influenced by a calculus of the perceived losses (loss of labour and schooling related costs) against the future possible benefits of enhanced earnings.…”

Emerging Economies: Muddling Through to Development

“…Associating education with the prospects of employment and career may also have other unanticipated consequences on the education system itself. While the expectation of employment is high among the educated individuals, the job opportunities in developing countries often do not match the numbers and levels of the educated (Quinn and Rubb 2006;Horii and Sasaki 2012). This may lead to a loss of faith in formal education among the people and a deterioration of education into job-oriented training (Bhaumik and Dimova 2004), which would condition the "educated" people to think in a particular fashion and thereby restrict innovative ideas and practices.…”

“…7. If the parents are uneducated, children are more likely to drop out of school than if they are educated (Horii and Sasaki 2012). In fact, it was observed by a UNESCO study (Epstein and Yuthas 2012) that the main problem with the education system in emerging economies is not the lack of enrollment but the high rates of dropouts especially at the secondary and tertiary levels, which is also causing a refocusing of educational efforts on continuing education and vocational education in developing countries (Saracevic et al 1985).…”