On the nature of education and training as drivers of growth

Roberto Antonietti, Department of Economics, University of Bologna, Italy

The paper deals with education and training as the crucial factors affecting growth and it addresses a twofold issue. The first one is the optimum provision of privately funded 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 productivity growth. General education 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 benefits.
The paper develops a theoretical endogenous growth model that borrows elements from Romer (1990) and Aghion and Howitt (1998), but allowing for the co-existence of imperfectly substitutable goods subject to quality-improvements based on the arrival of new technologies, that differ from existing technologies with respect to the specific labour skills that are needed to produce those new qualities of goods. In the first part we assume that the adoption of a new technology consists in 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 at first that it is possible to reach an optimum, endogenously determined, amount of firm-specific training, that depends positively on the individuals’ speed in skills acquisition and negatively on their educational attainment. Thus, a situation in which better educated may be disproportionately selected for training issues is possible. In the second part, the paper shows that an optimum endogenous amount of formal education is also computable and this can generate a steady state productivity growth. However, the paper suggests that education alone is not sufficient to guarantee ever-increasing growth rates, but a claim for a mix of education and on-the-job training is needed.
Using this framework of analysis, the paper finally provides some policy suggestions in terms of flexibility and specificity of human capital accumulation.

Date: 17 February-00 0000