Therefore, capital-skill complementarity combined with the pecuniary externalities implies that an improvement in the pool of workers that firms face leads to greater investments by firm
Trang 1Introduction to Modern Economic Growth Holding ˆh1
³
ˆ´
and ˆh2
³
ˆ´ constant, (10.41) implies that ˆk should increase, since the left-hand side has increased (in view of the fact that ˆh1
³
ˆ´
> ˆh2
³
ˆ´ and
∂2F (k, h) /∂k∂h > 0) Therefore, capital-skill complementarity combined with the pecuniary externalities implies that an improvement in the pool of workers that firms face leads to greater investments by firms Intuitively, each firm expects the average worker that it will be matched with to have higher human capital and since physical and human capital are complements, this makes it more profitable for each firm to increase their physical capital investment Greater investments by firms, in turn, raise F³
ˆ
k, h´ for each h, in particular for ˆh2
³
ˆ´ Since the earnings of type
2 workers is equal to λF³
ˆ
k, ˆh2
³
ˆ´´
, their earnings will also increase as a result
of the response of firms to the change in the composition of the workforce This
is therefore an example of human capital externalities, since greater human capital investments by one group of workers have increased the earnings of the remaining workers In fact, human capital externalities, in this economy, are even stronger, because the increase in ˆk also raises ∂F³
ˆ
k, ˆh2
³
ˆ´´
/∂h and thus encourages further investments by type 2 workers These feedback effects nonetheless do not lead to divergence or multiple equilibria, since we know from Proposition 10.3 that there exists a unique equilibrium with positive activity We summarize this discussion with the following result:
Proposition 10.6 The positive activity equilibrium described in Proposition 10.3 exhibits human capital externalities in the sense that an increase in the hu-man capital investments of a group of workers raises the earnings of the remaining workers
10.7 Human Capital Externalities The previous section illustrated how a natural form of human capital externalities can emerge in the presence of capital-skill complementarities combined with labor market imperfections This is not the only channel through which human capital externalities may arise Many economists believe that the human capital stock of the workforce creates a direct non-pecuniary (technological) spillover on the productivity
of each worker In The Economy of Cities, Jane Jacobs, for example, argued for
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