China’s college expansion program, which was implemented in 1999 significantly increased the share of college-educated workers in the urban labor force. We find that returns to education were not responsive to changes in local skill supply be- tween then and 2009. To explain the trend, we develop a model of endogenous technology adoption and predict that increasing the share of college-educated work- ers leads firms to adjust their use of production technology. We construct supply shocks in local labor markets based on policy-driven variations in the changes of college enrollment quotas across cities. Using panel data from over 20,000 large manufacturing firms, we find that an enlarged college-educated labor force causes skill-intensive firms to invest more in capital and R&D as well as employ more workers, evidence that supports the theory of endogenous technology adoption.
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
I26: Returns to Education
I28: Education: Government Policy
O32: Management of Technological Innovation and R&D