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00/11 Training policies and economic growth in an evolutionary world

Gerard Ballot and Erol Taymaz

The role of training and human capital accumulation as a source of innovation and growth is studied within an evolutionary micro-simulation model. Firms within the model learn about technology through radical/incremental innovation and imitation. General human capital increases the probability of innovation whereas specific human capital increases technical efficiency. Firms endogenously determine the level of investment in fixed and current assets, R&D activities, and education and training. Human capital accumulation through investment in education and training is shown to be source of economic growth even though firms tend to underinvest in these activities because they cannot fully recoup training costs when workers quit.

The paper investigates the effects of various training policies on macro-performance. The first policy is to subsidise all education and training activities. The second policy requires firms to spend a certain percentage of the wage bill on training activities. In the third case, the government subsidies training activities if the firm hires unemployed people, and pays the social security contributions for one year. We experiment with these policies because many European countries adopt similar policies to cure the unemployment problem and to enhance economic growth. By running 101 experiments for each policy, increasing the parameter value step by step, we are able to test the impact of training policies on macroeconomic performance (manufacturing growth rates, unemployment, etc.), and to estimate policy elasticities through econometric techniques. The results suggest that some subsidy policies are effective in improving the long-run macro-performance while a minimum requirement to train set upon firms is not.


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