Overcoming the Natural Resource Constraint Through Dedicated R&D Effort with Heterogenous Labor Supply
The effective labor possibility frontier (ELPF) is defined as the set of statically efficient allocations of labor imputs in the competing tasks of production and R&D. It summaries the labor scarcity constraint. We show that the dynamically efficient paths of R&D, resource extraction and consumption depend on the shape of the ELPF, while their steady state levels do not. In the case of an initial low endowment of resources, the transition to the stationary state is characterized by lower R&D effort, slower growth of per-capita consumption and a longer transition when labor is relatively specialized than when it is more flexible. We analyse policy options for modifying the shape of the ELPF, such as increasing the size of the labor force, subsiding higher education or lifelong learning.
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