The U.K. as a Technological Follower: Higher Education Expansion and the College Wage Premium

Abstract

The proportion of UK people with university degrees tripled between 1993 and 2015. However, over the same period the time trend in the college wage premium has been extraordinarily flat. We show that these patterns cannot be explained by composition changes. Instead, we present a model in which firms choose between centralized and decentralized organizational forms and demonstrate that it can explain the main patterns. We also show the model has implications that differentiate it from both the exogenous skill-biased technological change model and the endogenous invention model, and that UK data fit with those implications. The result is a consistent picture of the transformation of the UK labour market in the last two decades.

College Openings and Local Economic Development

“…The absence of any wage effect on high-skilled workers stands in stark contrast to other studies on the local effects of high-skilled migration (Beerli et al 2021) or college-induced growth in high-skilled labor (Carneiro et al 2022;Fuest and Immel 2021). Yet, our results support studies that do not find a substantial impact on high-skilled labor and the skill premium (Beaudry and Green 2003;Blundell et al 2022). Using a local production function approach, we show that in our setting the new colleges do generate little skill-biased technological change through changes in production (Acemoglu 1998) or research efforts (Beaudry and Green 2005;Caselli and Coleman 2006).…”

“…for evidence from Germany and, more recently, Blundell et al (2022) for the UK). How can we explain these very different results?…”

“…In the longer-run, firms might not respond to the growth in high-skilled labor by adjusting their production technologies; for instance. Such technology shifts could be due to profit-maximizing innovators' endogenous choice of research direction (Acemoglu 1998) or producers' selection of an optimal production technology from a given pool of alternatives (Beaudry and Green 2005;Blundell et al 2022). A third explanation for the absence of a change in the skill premium could be that firms invested in physical capital instead, which raised the productivity of all workers with little impact on the skill premium (Beaudry and Green 2003).…”

“…The CES production function restricts technological change to be of factor-augmenting form and we have abstracted from adjustments in other inputs, especially physical capital. Yet, periods of rapid technological change might not simply raise the productivity of some production factor, but generate disruption through the arrival of new forms of production, which also require new modes of organization (see the discussion in Beaudry and Green 2003;Blundell et al 2022). Moreover, plants might invest in additional physical capital, which could affect the skill premium if it is not factor neutral.…”

“…Closest to us are studies on the wage and employment effects of the growth in college graduates (see, e.g. Beaudry and Green 2003;Blundell et al 2022) or tertiary educational institutions (Carneiro et al 2022;Fuest and Immel 2021;Lehnert et al 2020). Unlike the former, we focus on the local impact of a local supply shock.…”