Should the Government Subsidize Supply or Demand in the Market for Scientists and Engineers?

Abstract

This paper suggests that innovation policy in the United States has erred by subsidizing the private sector demand for scientists and engineers without ask ing whether the educational system provides the supply response necessary for these subsidies to work. It suggests that the existing institutional arrange ments in higher education limit this supply response. To illustrate the path not taken, the paper considers specific programs that could increase the numbers of scientists and engineers available to the private sector. Preface My son attends an undergraduate institution that specializes in science and engineering. A degree from this school will cost more than $100,000 in tuition and 4 years of his time. For parents and students who contemplate an invest ment of this magnitude, the school provides information about labor market outcomes for its graduates. On its web site, the school provides the median sal aries for students who accepted jobs after graduation and the Ph.D. completion rates for students who go on to graduate school. If you search, you can see the entire distribution of outcomes?a listing for each student of the starting sal ary or graduate school in which they enrolled. If my son pursues a doctoral degree after he graduates, he will have to make an even larger investment. Net of the various sources of support that are avail able to graduate students, the direct tuition cost of a doctorate will probably be less than the cost of his undergraduate degree. He will, however, have to invest another 4 to 8 years of foregone earnings, which will be substantially higher once he completes his undergraduate degree. His college is unusual. Most undergraduate institutions do not provide any useful information about labor market outcomes for degree recipients. Yet as

Labor market trends with balanced growth

“…This would arise, for example, if new goods are more complex or are developed using more complex techniques. Such a change would cause the skill share of new goods to be higher and is consistent with Romer's finding of a significant increases in the percentage of the labor force represented by engineers (Romer, 2000).…”

Does competitive research funding encourage diversity in higher education?

“…Nevertheless, funds are allocated mainly on a non-competitive basis, despite the fact that to some extent the higher education institutions compete for students, since the public funding supports existing structures instead of valorising developing research and teaching activities (Conceição et al, 1998). Competition for students is a reality, but much less severe than is often portrayed, as students continue to be 'immature consumers' (Dill, 1997) as they lack sufficient information to make effective choices of courses and institutions (Romer, 2000). It should be noted that in some countries there is a degree of competition between universities based on the levels of tuition fees, but this is still a rare phenomenon and it is not always an effective means of competition.…”

Does the Choice between Wage Inequality and Unemployment Affect Productivity Growth?

“…34 The measures in education policy proposed by Romer (2000) belong to this latter class of parameter changes. So besides not relying on general-equilibrium effects, they have the additional advantage of reducing wage inequality.…”