A Dynamic Model of Education Level Choice: Application to Brazilian States

Using the education level/wage distribution curve of the Brazilian States we define a dynamic programming problem to determine the optimal choice of education level of the parents in their descendants favor. As a proxy for the opportunity cost of education we use the public expenditure in education. The results show that low level educated workers will use public schools to provide education to their offspring. For high educated workers (which receive higher wages) we find the existence of several steady states, some of them stable and others unstable. The findings point out the concentration of education in some specific levels and the existence of a poverty trap, where low educated workers chose low level of education for their descendants perpetuating low wages for the familiar unit. The performed exercise may be used as subside to the definition of public educational policies.