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On the Role of Education and Training as Drivers of Growth

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  • Adriaan van Zon
  • Robert Antonietti

Abstract

The paper studies the contribution of human capital on economic growth through its impact on the rate of innovation by formulating an endogenous growth model that combines elements from Romer (1990), Aghion and Howitt (1992), and van Zon and Yetkiner (2003). Using a relatively broad concept of human capital that includes not only formal education but also on-the-job training, the article addresses two main issues. The first one is the optimum provision of firm-specific training necessary to be able to adopt and adapt to new technologies. The second one is the impact of both formal education and on-the-job training on the innovative capacity of an economic system that is the ultimate cause of output growth. In our set-up, general education enhances R&D activities and lowers adjustment costs to new technologies, thus facilitating their adoption, while on the other hand learning and firm-specific training ensure the possibility to implement the new coming technologies and reap all the related future profits. In the first part we assume that the adoption of a new technology consists of two periods, i.e. the learning phase during which newly hired workers acquire the right amount of know how in order to become familiar with the specific new technology, and a production phase in which profit flows arise for firms and in which the cost savings can be realized that arise from productivity increases in the learning phase. By expanding the training phase, entrepreneurs run a greater risk of shortening the production phase for a given arrival rate of new technologies that progressively erode the profit flows obtained from existing technologies. The paper shows first that it is possible to find an optimum, endogenously determined, amount of firm-specific training, that depends on the individuals’ speed in skills acquisition and educational attainment. Thus, a situation in which better educated workers may be disproportionately selected for training issues is possible, especially in times of rapid technological change. However, the paper also shows that an increase in the formal level of education can even result in a reduction of growth because of the increase in ‘technology absorption costs’ in terms of output foregone during re-training spells that arrive at a faster rate. In addition, the paper shows how to calculate the optimum endogenous taxation rate in order to cover the educational expenditures while ensuring the maximum growth rate of innovations. The results achieved finally offer some interesting hints from an education policy perspective.

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c009_027.

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Length: 39 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:deg:conpap:c009_027

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Related research

Keywords: education; on-the-job training; human capital; endogenous growth; wear and tear effect;

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References

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  1. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
  2. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  3. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," NBER Working Papers 5956, National Bureau of Economic Research, Inc.
  4. Alessandra Colecchia & George Papaconstantinou, 1996. "The Evolution of Skills in OECD Countries and the Role of Technology," OECD Science, Technology and Industry Working Papers 1996/8, OECD Publishing.
  5. Jonathan Temple, 2000. "Growth Effects of Education and Social Capital in the OECD Countries," OECD Economics Department Working Papers 263, OECD Publishing.
  6. Pischke, Jörn-Steffen, 2000. "Continuous Training in Germany," IZA Discussion Papers 137, Institute for the Study of Labor (IZA).
  7. Theo S Eicher & Sang Choon Kim, 1998. "Market Structure and Productivity Revisited: Endogenous Productivity, Training and Market Shares," Working Papers 0075, University of Washington, Department of Economics.
  8. Richard R. Nelson & Edmond S. Phelps, 1965. "Investment in Humans, Technological Diffusion and Economic Growth," Cowles Foundation Discussion Papers 189, Cowles Foundation for Research in Economics, Yale University.
  9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  10. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, And The Demand For Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 339-376, February.
  11. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  12. Jacob Mincer, 1991. "Education and Unemployment," NBER Working Papers 3838, National Bureau of Economic Research, Inc.
  13. Bartel, Ann P & Lichtenberg, Frank R, 1987. "The Comparative Advantage of Educated Workers in Implementing New Technology," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 1-11, February.
  14. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
  15. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  16. Green, Francis & Ashton, David & Felstead, Alan, 2001. "Estimating the Determinants of Supply of Computing, Problem-Solving, Communication, Social, and Teamworking Skills," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 406-33, July.
  17. Lindner, Axel, 1998. "Modelling the German system of vocational education," Labour Economics, Elsevier, vol. 5(4), pages 411-423, December.
  18. Vladimir López-Bassols, 2002. "ICT Skills and Employment," OECD Science, Technology and Industry Working Papers 2002/10, OECD Publishing.
  19. Brunello, Giorgio, 2001. "On the Complementarity between Education and Training in Europe," IZA Discussion Papers 309, Institute for the Study of Labor (IZA).
  20. Redding, Stephen, 1996. "The Low-Skill, Low-Quality Trap: Strategic Complementarities between Human Capital and R&D," Economic Journal, Royal Economic Society, vol. 106(435), pages 458-70, March.
  21. Acemoglu, Daron, 1997. "Training and Innovation in an Imperfect Labour Market," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 445-64, July.
  22. Mincer, Jacob, 1984. "Human capital and economic growth," Economics of Education Review, Elsevier, vol. 3(3), pages 195-205, June.
  23. Rustichini, Aldo & Schmilz, James Jr., 1991. "Research and imitation in long-run growth," Journal of Monetary Economics, Elsevier, vol. 27(2), pages 271-292, April.
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