Education supply, economic growth and the dynamics of skills

Abstract

This paper examines the dynamics of the skill supply and its incidence on economic growth in the presence of education policies. When there are indivisibilities in the financing of human capital, small differences in the initial distribution of skills may greatly affect the stationary distribution: the economy may end up in a “low skill trap”, or in a high skill equilibrium. The model implies that for some ranges of initial distributions there will be intergenerational immobility. Finally, cross-country differences in long-term macroeconomic adjustment to education policies may be attributed, among other factors, to the existence of a congestion effect in the education system.