How responsive is higher education? The linkages between higher education and the labour market

Higher education is considered vital for developing a productive and dynamic labour force to meet the demands of the global economy. How effectively does the US higher education sector respond to labour market signals? We match US postsecondary degree completions from 1984 to 2008 with occupational employment statistics and employ an Instrumental Variable (IV) strategy to examine the supply response to changes in occupation specific demand. The supply of educated workers appears weakly responsive to short-term wage signals and moderately responsive to long-term employment conditions. Analysis reveals a sizeable degree of heterogeneity and lag in the responsiveness across specific occupation–degree pairings. Failure to respond rapidly to changes in labour demand may be one factor driving inequality in wages across occupations and in the aggregate economy. We suggest some simple policy measures to help increase the responsiveness of the higher education sector, both in terms of the output of specific degree programmes and the overall mix and composition of graduate completions.

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