Why does the Solow Model matter for undergraduate students?

Question

I've been looking at the economics undergraduate curriculum and have been thinking and wondering as to what specific skillset we want to equip undergraduate students with in the working world.

One can think about this by thinking about the ideal career outcomes of economics undergraduates. Most undergraduates with economics degrees should ideally end up in two occupations^* (ideally meaning that their education will correspond to a desired occupation):

1. Data Analyst (using exclusively data to identify actionable information)
2. Business Analyst (using data and qualitative information regarding the economic environment relevant to a given business to identify actionable information).

With these two ideal career outcomes in mind its very clear as to why intermediate microeconomics, econometrics and market macro makes a difference. However as to why the Solow Growth model is taught on the undergraduate level is a bit confusing for me and Im left with any satisfactory answer.This is a relevant question because its a part of the core undergraduate macroeconomics education so its relevant for even those not intending to go to graduate school.

In terms of specific career outcomes (it could be that this list is lacking) why is studying the Solow model relevant for the undergraduate student who does not intend to go to graduate school?

EDIT: Im not coming to say the solow model is useless, im asking why this is a part of the core economics curriculum. I myself am interested in economic growth in terms of understanding the economy and its fluctuations. Additionally I'm an economics educator not a student so these questions do come up in classes where im responsible to respond to them.

Answer 1

I disagree that:

a) The core curriculum should not include things that are relevant only for those pursuing graduate school.

b) A university degree should necessarily focus only on career outcomes for students.

c) There are only two relevant careers and therefore the only thing worth teaching is how to handle different types of data.

The core curriculum needs to provide a foundation for all future paths of students, which includes those going to graduate school.

Further, a university degree is foremost a scientific (or at times artistic) pursuit within a field and not a trade school. That is why professors are scientists (or at times artists) and not industry professionals. After a bachelor's degree a graduate should at least understand the basics of that field. Sure, many of those skills learned at university can partially be transferable to a job in the real world. However, that's a different story, which often does not involve the actual material learnt, but other skills learnt along the way, such as critical thinking and writing.

The Solow model is the foundation for beginning to understand economic growth and development. That is at the core of what the economics field aims to understand. Even most policy debates will inevitably involve growing the economy or creating jobs. I would argue any student that is not interested in that question at all has no business studying economics. That is why the Solow model is in the core curriculum.

Lastly, there is a reason not everyone studies statistics and IT so that we can all become data analysts (for business or otherwise). The reason is that there are many other career paths.

Answer 2

I second/third/whatever the objection to the "ideal careers" put forth here.

1. Data Analyst - Most of these jobs will go to comp-sci graduates, especially as artificial intelligence and machine learning methods become more widely adopted. Tools such as deep learning, generative adversarial networks, and reinforcement learning explicitly require no or little subject-matter expertise for pattern recognition as they are "black box" algorithms. As an economics student you will pick up some of the understanding needed to do this work, but inefficiently, and the odds that faculty at your school will see the connections are dodgy at best. As you note, you don't need Solow to program what is essentially a nested probit model, but that's a bit like pointing out that you don't need quantum mechanics to operate a telescope - yet QM is typically core to a physics undergrad, whereas astronomy is typically not.
2. Business Analyst - There are at least three billion MBAs in the world. They will be hired before you in nearly any industry for which you do not have a personal connection. Frankly, unless you're vying for a C-level position along this line, it would be a waste of your training. Much of what passes for "business analysis" is just sophisticated Googling.

What you're missing here is a crucial third path, and I speak from direct personal experience on why actually understanding economics - including Solow and its derivative models - is important:

3. Policy Analyst - This is my field. To put it politely, the amount of policy that is developed on the strength of, at best, a second-year understanding of economic theory is remarkable. Knowing more and being able to communicate it well is a fast way to get ahead. An example of where Solow fits in is in the area of innovation policy - one encounters a lot of decision makers who bandy-about terms like "total factor productivity" without really grasping what it is. You will encounter this term as you go on to study derivatives of the Solow model and it will help yield insights that have direct real-world consequences (e.g., Romer's technological change model can be used to argue that overly restrictive intellectual-property rules can slow or even reverse the rate of technological change, something that has been the subject of much recent empirical study).

In short, there's a lot more to the Solow model than what you're being shown in class. Perhaps you've just got a dry lecturer who isn't giving enough context for the lessons, but at the level at which you're encountering it, you should be fully capable of asking your own questions and pursuing them (which you're sort of doing here, but you're encumbering yourself with too many assumptions about the answer).

Answer 3

Adding to previous answers ...

The basic Solow model is an example of a class of long-term macroeconomic models in which output is a function of inputs of two or more factor inputs and the ratios of the inputs may vary over time or between countries. Other examples include:

• The Mankiw-Romer-Weil model which treats physical and human capital as separate inputs, in addition to labour, and explores the implications for the comparative growth rates of countries starting with different amounts of the two forms of capital.
• The Dasgupta-Heal-Solow-Stiglitz model which includes a nonrenewable natural resource as an additional input.

An understanding of such models (both their implications and their limitations) is useful in a variety of policy contexts, especially those concerning development and sustainability. And I would add that, even for the 'educated lay person' it surely is, or should be, of considerable interest to have some awareness of how much future economic growth is possible, so that if little growth is achieved and living standards stagnate, they can have an informed view as to whether that represents a failure of government policy, or is simply because faster growth was never feasible. From where can such an awareness come, other than from those who have studied economics?

Having said that, from a pedagogical point of view the basic two-input Solow model, despite and indeed because of what it leaves out, is probably the best starting-point in introducing students to this type of theory

Answer 4

I think that the main reason why the Solow model is a must in every undergrad curriculum is the Solow residual.

The fact that the bulk of the differences of per capita income between countries is not due to capital intensity or human capital is on face value paradoxical.

Among non-economists this is the most underappreciated insight from economic research that I can think of. Therefore no-one should get a degree without having studied this and there is no simpler framework than the Solow model to do this.