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The Importance of Education and Skill Development for Economic Growth in the Information Era

The Importance of Education and Skill Development for Economic Growth in the Information Era

Chapter:
(p.115) 3 The Importance of Education and Skill Development for Economic Growth in the Information Era
Source:
Education, Skills, and Technical Change
Author(s):
Charles R. Hulten
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226567945.003.0005

The neoclassical growth accounting model the BLS uses to identify the contributions of the various sources of growth in the US economy accords a relatively small role to education. This seems at variance with the revolution in information technology and the emergence of the “knowledge economy”, or with the increase in educational attainment and the growth in the wage premium for higher education. This chapter revisits this result using an “old fashioned” activity analysis, rather than the neoclassical production function, as the technology underlying economic growth. An important feature of this activity-based technology is that labor and capital are strong complements, and both inputs are therefore necessary for the operation of an activity. The composition of activities in operation at any point is thus a strong determinant of labor skill demand, and changes in the composition driven by technical innovation are a source of the increase in the demand for more complex skills documented in the literature. A key result of this chapter is that the empirical sources-of-growth results reported by BLS could equally have been generated by the activity-analysis model. This allows the BLS results to be interpreted differently, assigning a greater importance to labor skills and education.

Keywords:   education, human capital, skill development, economic growth, total factor productivity, intangible capital

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