Abstract
We present a model where the interaction between the size of the elite school sector, industrial structure and labor market outcomes is characterized by the concept of Nash decentralized equilibrium. Depending on the underlying parameters, the economy described in the model can be characterized by multiple regime equilibria and historical accident decides which equilibrium the economy falls in. In one regime, the size of the elite school sector affects investment in academic skills, average productivity and wages. In another regime, elite schools do not matter for productivity and wages. Government policy that tries to shift the economy from the latter to the former regime cannot succeed unless there is a regime shift in the hiring policies of firms, from the reliance upon experienced workers to the emphasis on hiring school graduates from elite schools.
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