A Co-evolutionary Model for Human Capital and Innovative Firms

The paper aims to study the co-evolution dynamics of human capital and innovative firms by means of an evolutionary game theory model. We analyze the properties of the model, showing that if the demand for skilled labor is higher than its supply, then innovative firms may have an incentive to become non-innovative and stop hiring skilled workers. If, by contrast, the supply of skilled labor is higher than its demand, then there could be incentives for non-innovative firms to become innovative. Then, we introduce the dynamic extension of the model, applying a replicator dynamics equation for the fraction of innovative firms and the fraction of skilled workers. The steady states of the system are identified and as the most interesting one, the interior steady state, is discussed. Subsequently some simplified versions of the model are proposed and studied. By means of such analysis, we claim that a policy oriented to increasing the stock of skilled labor can set the economy on a positive path towards technological development.