Skill-speciÞc rather than General Education: A Reason for Slow European Growth?∗

In this paper we develop a model of technology adoption and economic growth in which households optimally decide whether to obtain concept-based “general” education or specialized, skill-speciÞc “vocational” education. The advantage of obtaining general education — a reduction in the loss of a worker’s task-speciÞc productivity when new a technology is incorporated into production — has to be traded off against the higher cost of obtaining general education. Firms weigh the cost of adopting and operating new technologies against increased revenues and optimally choose the level of adoption. Conditional on their education, households then choose whether to work in the technology-adopting “high-tech” sector or in the non-adopting “low-tech” sector. 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. Our theory suggests that while European education policies that favored specialized, vocational education might have worked well during the the 60s and 70s when available technologies changed slowly, it may have contributed to slow growth and increased the growth gap relative to the US in the information age of the 80s and 90s when new technologies emerged at a more rapid pace. ∗Preliminary version. Comments and suggestions are welcome. We beneÞtted from useful discussions and comments from Andy Atkeson, Felix Kubler, Aris Protopapadakis, Victor Rios-Rull, Manuel Santos, Harald Uhlig, and participants at the USC research lunch and the 2001 SED meeting at Stockholm. Remaining errors are our own. Kumar acknowledges support from the USC Marshall School’s research fund.