Skill-specific 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 obtain either a concept-based, "general" education or a skill-specific, "vocational" education. General education is more costly to obtain, but reduces the loss of a worker's task-specific productivity whenever a new technology is incorporated into production. 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 between working in the technology-adopting sector and the non-adopting 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 60s and 70s when available technologies changed slowly, it may have contributed to slow growth and may have 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.