Labor productivity and obsolete skills in a growth model with production by layers

Abstract

Purpose

The purpose of this paper is to study the growth dynamics in a model where labor productivity is shaped by two forces. On one hand, it is determined by the extent in which available technology has been already explored. On the other hand, some labor skills may become obsolete, jeopardizing the ability of the labor input in creating value, namely when a transition between technological states takes place.

Design/methodology/approach

A theoretical model is developed, based on previous work about hierarchical organizations of production, in order to build an integrated structure of analysis for growth, productivity, innovation and obsolescence of skills.

Findings

In a setting in which output grows through the accumulation of layers of activity, the generation of income and the evolution of techniques will be determined by the choice of a representative agent, who faces a trade-off between consumption utility and the desire to maintain intact the skills of the labor force.

Research limitations/implications

The theory provides an analytical structure to think about skill acquisition and skill obsolescence in the context of economic growth. Further work is necessary, namely at an empirical level, to test the validity and the reasonability of the model's implications.

Originality/value

The paper sheds light on the role of labor productivity as a growth determinant. It seeks a deeper understanding on the relationship between human capabilities and the efficient use of technology.

Citation

Gomes, O. (2014), "Labor productivity and obsolete skills in a growth model with production by layers", Journal of Economic Studies, Vol. 41 No. 3, pp. 431-452. https://doi.org/10.1108/JES-11-2012-0153