Education and training in a model of endogenous growth with creative wear-and-tear

How does the rate at which firms adopt new technologies affect the level of education and training of a country's workforce? If technological change makes knowledge obsolete and tends to foster general rather than firm-specific skills, what would be the optimum level of education spending in front of a faster arrival of new technologies? This paper tries to answer these questions by developing an endogenous growth model which focuses on privately financed general education and firm financed technology specific training in a setting where creative destruction renders technology specific training gradually obsolete. In this setting, general education defines the base-level productivity of a worker, and technology specific training is formally a substitute for general education from a productivity point of view, but it may (and does) also add to base-level productivity in the determination of the ultimate productivity of workers. The model looks into the question which combinations of education and training are most conducive to growth, and whether or not decisions by households regarding education and by firms regarding training are in line with each other to the extent that they would generate maximum growth The paper reproduces some stylized facts on the technology-training relationship and shows how the optimum amount of time devoted to education and job training is affected by the rate of technical change itself. In particular, we find that a faster arrival of innovations shifts the private knowledge portfolio towards general human capital. We also find that households tend to under invest in education, thus leading to lower growth rates than technically feasible, and higher training costs than absolutely necessary. This suggests that there is room for education policy reducing private education fees.