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Skill-Specific rather than General Education: A Reason for US–Europe Growth Differences?
Authors:Dirk Krueger  Krishna B Kumar
Institution:(1) Department of Economics, University of Pennsylvania, Philadelphia, PA, 19104;(2) Centre for Economic Policy Research, 90–98 Goswell Road, London, EC1V 7RR, United Kingdom;(3) National Bureau of Economic Research, Inc., 1050 Massachusetts Avenue, Cambridge, MA, 02138;(4) Department of Finance and Business Economics, USC Marshall School of Business, Los Angeles, CA, 90089
Abstract:In this paper, we develop a model of technology adoption and economic growth in which households optimally obtain either a concept-based, ldquogeneralrdquo education or a skill-specific, ldquovocationalrdquo education. General education is costly to obtain, but enables workers to operate new production technologies. Firms weigh the cost of adopting and operating new technologies against increased profits and optimally choose the level of adoption. We show that an economy whose policies favor vocational education will grow slower in equilibrium than one that favors general education. More importantly, the gap between their growth rates will increase with the growth rate of available technology. By characterizing the optimal Ramsey education policy we also demonstrate that the optimal subsidy for general education increases with the growth rate of available technology. Our theory suggests that European education policies that favored specialized, vocational education might have worked well, both in terms of growth rates and welfare, during the 1960s and 1970s when available technologies changed slowly. However, in the information age of the 1980s and 1990s when new technologies emerged at a more rapid pace, they might have contributed to an increased growth gap relative to the United States.
Keywords:education policy  technology adoption  balanced growth  Eurosclerosis
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