Working Paper: NBER ID: w10001
Authors: Dirk Krueger; Krishna Kumar
Abstract: European economic growth has been weak, compared to the US, since the 80s. In previous work (Krueger and Kumar, 2003), we argued that the European focus on specialized, vocational education might have been effective during the 60s and 70s, but resulted in a growth gap relative to the US during the subsequent information age, when new technologies emerged more rapidly. In this paper, we extend our framework to assess the quantitative importance of education policy, when compared to labor market rigidity and product market regulation, other policy differences more commonly suggested to be responsible for US-Europe differences. A assigns a major role to education policy in explaining US-Europe growth differences.
Keywords: technology-driven growth; education policy; US-Europe growth differences
JEL Codes: O40; O30; I21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher subsidies for general education (H52) | Increased educational attainment (I24) |
| Increased educational attainment (I24) | Higher technology adoption rates (O33) |
| Higher firing cost or regulation cost (L51) | Accepting inferior productivity draws (D24) |
| Accepting inferior productivity draws (D24) | Lower wages (J31) |
| Lower wages (J31) | Decreased incentive to acquire general education (I24) |
| Decreased incentive to acquire general education (I24) | Decreased expected growth rate (O49) |
| Higher general education subsidy (I29) | Lower relative wages for adoption workers (J39) |
| Higher general education subsidy (I29) | Increased rate of technology adoption (O33) |
| Higher general education subsidy (I29) | Increased growth rate (O42) |
| Change in education policy (I28) | Explains most of the growth gap (O41) |
| Decreases in firing and regulation costs (L51) | Help reduce the growth gap (I24) |