Human Capital and Innovation: a model of endogenous growth with a skill-loss effect

LONDON, S, BRIDA J. G, RISSO A

Economics Bulletin

Vanderbilt University

Lugar: Vanderbilt, USA; Año: 2008 vol. 15 p. 1 - 10

1545-2921

There exist two basic frameworks in which the relationship between education and growth can be modelled and analyzed. The first one was introduced by Lucas (1988), who emphasized on human capital accumulation as an alternative source of sustained growth, instead of only technological change. The second approach goes back to the seminal work of Nelson and Phelps (1966), in which growth is described as being driven by the stock of human capital (HK), which in turn affects the ability to innovate. Both approaches yield insights on the growth effects of educational policies. Further theoretical and empirical studies showed that the divergence in growth rates across countries could be due not so much to differences in the rates of accumulation of HK, as suggested by Lucas, but to differences in the corresponding levels (see for example Benhabib and Spiegel, 1994). The present paper argues that, in line with the Nelson-Phelps approach, (N&P from now) there exist important complementarities among educational attainment, R&D activities (and their derived innovations) and economic growth, although subject to a “skill-loss effect” (which we call -effect), due to the presence of workers who have to perform jobs that require other (or lower) capacities than the ones they have. Section II describes the -effect, that can be identified with the loss of acquired knowledge, as a result of disequilibrium in the labour market. Section III presents a formal model along the lines of Redding (1996), in which we introduce the parameter . Section VI introduces an empirical analysis for Argentina, in which we show that a distorted labor market can negatively affect the investment in human capital. Section V examines some policy implications and presents the conclusions.