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Murtin on education and economic growth in the US

This paper proposes a model of long term economic development and assesses it on the United States 1840-2000. Because of a low cost of education, parents invest into children’s education and simultaneously diminish the number of their offspring. This trade-off generates a virtuous circle in which individual productivity, labor market participation and the share of the labor force in total population are rising, ultimately transforming a physical capital-based economy into a human capital-based economy. Overall, the model accounts for major traits of American economic development at the micro-economic level over the period, which are: the rapid spread of education, the continuous decrease in fertility and the associated rise in women participation to the labor market, the reduction in differential fertility across income groups, the growth in life expectancy, the Great Compression of income inequality in the course of the twentieth century, and intergenerational correlation of income. Macro-economic trends such as capital deepening in the nineteenth century, the ageing structure of the population, the rise in labor productivity and fast technological change, are also well captured. Counterfactuals show that the expansion of education has a comparable effect on the growth rates of labor and physical capital, and that inequality has a detrimental impact on output growth because it slows down the accumulation of human capital across generations.

Fabrice Murtin, “American Economic Development or the Virtues of Education,” unpublished paper. Available here.

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