Working Paper: NBER ID: w24141
Authors: Charles R. Hulten
Abstract: The neoclassical growth accounting model used by the BLS to sort out the contributions of the various sources of growth in the U.S. economy accords a relatively small role to education. This result 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 paper revisits this result using “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 the activities in operation at any point in time is thus a strong determinant of the demand for labor skills, 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 paper 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 in a very different way, one that assigns a greater importance to labor skills and education.
Keywords: Education; Skill Development; Economic Growth; Information Technology; Knowledge Economy
JEL Codes: I26; J24; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| education (I29) | economic growth (O49) |
| skill development (J24) | economic growth (O49) |
| technological advancements (O33) | demand for higher-order cognitive and noncognitive skills (J24) |
| demand for higher-order cognitive and noncognitive skills (J24) | education (I29) |
| education (I29) | productivity growth (O49) |
| growth in educational attainment (I24) | wage premiums for skilled labor (J31) |
| structural changes in the economy (L16) | demand for skills (J24) |