Human capital accumulation and output growth in a stochastic environment (Q934900)

This paper studies the relationship between growth and volatility in a simple analytical model, where human capital accumulation depends on both deliberate and non-deliberate learning, and where stochastic fluctuations arise from both preference and technology shocks. It derives a number of new results which challenge some of the results in the existing literature. First, it shows that the optimal allocations of time to working and learning are both pro-cyclial. Second, it identifies a preference parameter that is potentially crucial for governing the effect of volatility growth. Third, it demonstrates this effect can be either positive or negative under each type of learning, the relative importance of which is irrelevant to the outcome. Fourth, it reveals how the effect may also be different for the two types of shock. The result may be seen as providing further explanation for the lack of robust evidence on the issue.