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 with creative 'wear and tear' in which general education enhances innovation through R&D and lowers adjustment costs to new technologies, while on-the-job training is necessary for firms to realise their profit potentials by implementing the new technologies and reap all the related future quasi-rents. 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.