The Supply of Skill and Endogenous Technical Change: Evidence From a College Expansion Reform
New working paper by Pedro Carneiro (University College London), Kai Liu (University of Cambridge) and Kjell G. Salvanes: "The Supply of Skill and Endogenous Technical Change: Evidence From a College Expansion Reform".
We examine the labor market consequences of an exogenous increase in the supply of skilled labor in several cities in Norway, resulting from the construction of new colleges in the 1970s. We find that skilled wages increased as a response, suggesting that along with an increase in the supply there was also an increase in demand for skill. We also show that college openings led to an increase in the productivity of skilled labor and investments in R&D. Our findings are consistent with models of endogenous technical change where an abundance of skilled workers may encourage firms to adopt skill-complementary technologies, leading to an upward-sloping long-run demand for skill.