We Can Do It

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American Economic AssociationInvestment in Humans, Technological Diffusion, and Economic GrowthAuthor(s): Richard R. Nelson and Edmund S. PhelpsSource: The American Economic Review, Vol. 56, No. 1/2 (Mar. 1, 1966), pp. 69-75Published by: American Economic AssociationStable URL: http://www.jstor.org/stable/1821269Accessed: 11/10/2010 23:45Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available athttp://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unlessyou have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and youmay use content in the JSTOR archive only for your personal, non-commercial use.Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained athttp://www.jstor.org/action/showPublisher?publisherCode=aea.Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact support@jstor.org.American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to TheAmerican Economic Review.http://www.jstor.org INVESTMENT IN HUMANS, TECHNOLOGICAL DIFFUSION, AND ECONOMIC GROWTH By RICHARD R. NELSON, RAiND Corporation and EDMUND S. PHELPS, Yale University I. Introduction Most economic theorists have embraced the principle that certain kinds of education the three R's, vocational training, and higher edu-cation-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 en-hances 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. In applying this principle we find it fruitful to rank jobs or functions according to the degree to which they require adaptation to change or require learning in the performance of the function. At the bottom of this scale are funictions which are highly routinized: e.g., running a power saw or diagnosing a malfunction in an automobile. In these func-tions, the discriminations to be made and the operations based on them remain relatively constant over time. In the other direction on this scale we have, for example, innovative functions which demand keeping abreast of improving technology. Even a highly routinized job may require considerable education to master the necessary discriminations and skills. But probably education is especially important to those functions requiring adaptation to change. Here it is necessary to learn to follow and to understand new technological developments. Thus far, economic growth theory has concentrated on the role of education as it relates to the completely routinized job. In its usual, rather general form, the theory postulates a production function which states how maximum current output depends upon the current services of tangible capital goods, the current number of men performing each of these jobs, the current educational attainments of each of these job-holders, and time. To simplify matters, some alnalysts have specified a production function in which output depends upon tangible capital and "effective labor"; the latter is a weighted sum of the number of workers, the weight assigned to each worker being an increasing function of that worker's educational attainment. This specification assumes that highly educated men are perfect substitutes for less...
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