Fisher Center for Real Estate and Urban Economics

Higher education is considered vital for developing a productive and dynamic labor force to meet the demands of the global economy. How effectively does the US higher education sector respond to labor market signals? We match US post-secondary degree completions from 1984 to 2008 with occupational employment statistics and employ an instrumental variables 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 longer-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 labor 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 programs and the overall mix and composition of graduate completions.