Abstract
In this lecture we analyze the optimal skill mix in a model with two kinds of imperfectly substitutable labor, skilled and unskilled. The population is characterized by a distribution of innate abilities, and individuals are trained according to optimal or market (with imperfect expectations) rules; the length of each individual’s training period depends upon his innate ability The market and optimal rules are characterized and compared and corrective policies are investigated. This model represents a major advance over earlier models, which are based on the following assumptions: (a) either unskilled and skilled labor are perfectly substitutable or training is a necessary condition for employment; (b) individuals are innately identical; (c) in most cases, training occurs either instantaneously or with fixed lag.
Discussed in great length by Dobell in his lectures appearing in this volumn.
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Sethi, S.P., McGuire, T.W. (1974). An Application Of The Maximum Principle to a Heterogeneous Labor Model with Retarded Controls. In: Kirby, B.J. (eds) Optimal Control Theory and its Applications. Lecture Notes in Economics and Mathematical Systems, vol 106. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-48290-8_15
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DOI: https://doi.org/10.1007/978-3-642-48290-8_15
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