Dr William Dickens
The Brookings Institution, Washington, DC
William Dickens is a Senior Fellow in Economic Studies at The Brookings Institution in Washington DC. He taught in the Economics Department at the University of California at Berkeley from 1980 till 1995, and served the Presidents Council of Economic advisors as a Senior Economist in 1993 and 1994. Most of his work explores the macro economic implications of the functioning of labour markets. Much of that work has involved introducing psychological concepts into economic theory, and recently he has been importing insights from economic methodology into the field of psychology. His current projects include: 1) a cross national study of wage rigidity using micro data which he is working on with collaborators at the ECB, the New York Federal Reserve, and teams in 13 countries, 2) the development of models to analyze the impact of education policy on growth and fiscal balance, and 3) modelling the long-term trend growth in cognitive test scores.
Economists have long believed that investments in education, or "human capital," are an important source of economic growth. Over the last 40 years output has grown about 3.5 percent a year and the productivity of labour has grown about 2.4 percent per year. Estimates of the contribution of education to labour productivity growth vary from 13 percent of it to 24 percent or more, with its contribution to total growth being about two-thirds of that. Whatever the contribution of education to growth in the past, many people believe that investments in human capital will be more important than investments in physical capital in the future as we become a post-industrial, knowledge-based economy, and they worry that we are giving insufficient policy attention to this issue.
Why might a more highly educated workforce increase economic growth? One possibility is that a more educated labour force is more mobile and adaptable, can learn new tasks and new skills more easily, can use a wider range of technologies and sophisticated equipment (including newly emerging ones), is more autonomous and thus less in need of supervision, and is more creative in thinking about how to improve the management of work. All of these attributes not only make a more highly skilled worker more productive than a less skilled one but also enable a work place, or for that matter, an entire economy that has a lot of educated workers, to organize differently, manage differently, choose technologies and equipment differently, and adjust better to changes necessitated by competition, by technical advances, or by changes in consumer demand.
In this paper we develop a model that is flexible enough to allow a wide range of assumptions about the role of education in promoting economic growth. The model is particularly elaborate in its treatment of the breakdown of the population into different cohorts and in determining the amount of education people in different cohorts receive. This treatment allows us to develop a realistic estimate of the timing of the growth effects of a program that will take many years to have its full impact.