"Investment in Humans, Technological Diffusion, and Economic Growth"

Most economic theorists have embraced the principle that certain kinds of education--the three R's, vocational training, and higher education--equip a man to perform certain jobs or functions, or enable a man to perform a given function more effectively. The principle seems a sound one. Underlying it, perhaps, is the theory that education enhances one's ability to receive, decode, and understand information, and that information processing and interpretation is important for performing or learning to perform many jobs.

[snip]

We shall consider now the importance of education for a particular function requiring great adaptation to change. We then propose two models which these considerations suggest.


II. The Hypothesis

We suggest that, in a technologically progressive or dynamic economy, production management is a function requiring adaptation to change and that the more educated a manager is, the quicker will he be to introduce new techniques of production. To put the hypothesis simply, educated people make good innovators, so that education speeds the process of technological diffusion.

Evidence for this hypothesis can be found in the experience of United States agriculture. It is clear that the farmer with a relatively high level of education has tended to adopt productive innovations earlier than the farmer with relatively little education. We submit that this is because the greater education of the more educated farmer has increased his ability to understand and evaluate the information on new products and processes disseminated by the Department of Agriculture, the farm journals, the radio, seed and equipment companies, and so on. The better educated farmer is quicker to adopt profitable new processes and products since, for him, the expected payoff from innovation is likely to be greater and the risk likely to be smaller; for he is better able to discriminate between promising and unpromising ideas, and hence less likely to make mistakes. The less educated farmer, for whom the information in technical journals means less, is prudent to delay the introduction of a new technique until he has concrete evidence of its profitability, like the fact that his more educated friends have adopted the technique with success.

Investment in Humans, Technological Diffusion, and Economic Growth
Richard R. Nelson and Edmund S. Phelps
The American Economic Review, Vol. 56, No. 1/2, (Mar. 1, 1966), pp. 69-75

Apparently Nelson-Phelps is the classic paper on education and technology diffusion.

That educated workers tend to be early adopters is one of the main reasons why the 20th century was the American Century. The U.S. educated all children in the liberal arts, while the Europeans educated only the elite, tracking the rest of its children into vocational education. Europeans saw the American model as foolish and wasteful. What use has a farmer for algebra!

But the Americans were right. Education has several "indirect" effects on economic growth beyond the direct effect of equipping a child with the skills he will need to earn a living as an adult. These indirect effects exist regardless of whether a particular boy or girl will or will not "use" algebra or Latin in his career.

One of those indirect effects is the fact that educated workers can and will adopt a good new technology sooner rather than later. Educated workers make smart early adopters.

I think the effect of this has to be enormous. Temple (Grandin) often tells me that designing new technologies is the easy part; getting an industry to adopt a new technology is what's hard. In the real world people don't beat a path to your door just because you've built a better mousetrap.

Here are Goldin and Katz:

Suggestive evidence exists that the magnitude of the indirect effects of education on labor productivity is substantial. For example, firms and establishments with more educated workers have long been found to be earlier adopters of new technologies and have been shown recently to garner greater productivity benefits from information-technology investments.

The Race between Education and Technology
Claudia Goldin & Lawrence F. Katz
p. 41

A roaring economy doesn't happen when you have an educated elite inventing groovy new technologies.

You need an educated mass to buy the stuff.

Not to mention RTFM.

Or, better yet, WTFM.


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