Skill-Specific Rather then General Education: A Reason for Us-Europe Growth Differences?

37 Pages Posted: 3 Jan 2003 Last revised: 31 Oct 2010

See all articles by Dirk Krueger

Dirk Krueger

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Krishna B. Kumar

University of Southern California

Date Written: January 2003

Abstract

In this paper, we develop a model of technology adoption and economic growth in which households optimally obtain either a concept-based, general' education or a skill-specific, vocational' education. General education is more costly to obtain, but enables workers to operate new technologies incorporated into production. Firms weigh the cost of adopting and operating new technologies against increased revenues 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. Moreover, the gap between their growth rates will increase with the growth rate of available technology. By characterizing the optimal Ramsey education subsidy policy we 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 60s and 70s when available technologies changed slowly. In the information age of the 80s and 90s when new technologies emerged at a more rapid pace, however, it may have suboptimally contributed to slow growth and may have increased the growth gap relative to the US.

Suggested Citation

Krueger, Dirk and Kumar, Krishna B., Skill-Specific Rather then General Education: A Reason for Us-Europe Growth Differences? (January 2003). NBER Working Paper No. w9408, Available at SSRN: https://ssrn.com/abstract=366445

Dirk Krueger (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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HOME PAGE: http://www.econ.upenn.edu/~dkrueger/

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Krishna B. Kumar

University of Southern California ( email )

Marshall School of Business, HOH 701
Los Angeles, CA 90089
United States
213-740-6533 (Phone)
213-740-6650 (Fax)

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