Why Isn't Convergence Instantaneous? Young Workers, Old Workers, and Gradual Adjustment

The human capital of young and old workers are imperfect substitutes both in production and in providing on-the-job training. This helps explain why capital does not flow from rich to poor countries, causing instantaneous convergence of per capita output. If each generation chooses its human capital optimally, given that of the preceding and succeeding generations, human capital follows a unique rational-expectations path. For moderate substitutability, human capital within each sector oscillates relative to that in other sectors, but aggregate human capital converges to the steady state monotonically.