Dexterity as a Source of Economic Growth

Determining which production resources embody business skills is a very important issue, not only for investment function theory but for the theory of the firm. Uzawa regards these nurtured skills as being entirely attributable to real capital and establishes a microeconomic foundation for Tobin’s q theory. However, how skills are embodied in real capital in the Tobin–Uzawa theory is quite ambiguous. It seems natural that such skills are acquired by employees through learning by doing as proposed by Arrow, and/or formal education within a firm. Thus, labor is dealt with here as a quasi-fixed production resource instead of as real capital. The objective function of a firm is set as the discounted sum of the surplus from skilled employees, and this solves the optimal path of accumulation of intangible skills. The following results are obtained: first, human-capital q theory that emphasizes the importance of internalization of the positive externality from skilled labor force to real capital is established. This externality is termed the dexterity of employees; and second, the case where an employer regards the firm as a standard neoclassical type is considered. In such a case, since the contribution of dexterity is neglected, the employer recognizes that the production function is not one of constant return, but gives decreasing returns to scale. As a result, the equilibrium growth rate of such a firm becomes zero in the long run. This finding implies that to sustain the growth of a firm it is crucial to evaluate the dexterity of employees correctly.