Young Workers, Old Workers, and Convergence
50 Pages Posted: 10 Jun 2000 Last revised: 17 Sep 2010
Date Written: August 1994
The human capital of young and old workers are imperfect substitutes both in production and in 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 previous 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, at rates consistent with those observed empirically.
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