If We Build It, We Will Come: Strategies for Developing Academic Institutions and the Evolution of Career Choices by Top Talent During Japan’s Industrialization

Modern economies rely on academia as a critical complement to industry in generating new knowledge that fuels endogenous growth. Academia’s ability to perform this role, however, depends on recruiting and retaining talented faculty who have lucrative alternative options in industry—an ability that, as recent developments in U.S. science suggest, cannot be taken for granted. We utilize unique data on the census of university-educated engineers from the first forty graduating cohorts of higher technical education in Japan to study the formation of the environment for innovation encompassing academia and industry. Historical analysis shows the endogenous emergence of academic science through institutions built largely through the efforts of incumbent faculty to redefine academic purpose toward research, and this created spillover opportunities for subsequent generations of top talent to pursue innovation in academia. Structural estimation of an occupational choice model then shows that such a transformation of academia into a differentiated institutional field for scientific work manifested in a rise in its non-pecuniary rewards across cohorts. This enabled academia to keep attracting top-ranked graduates despite a widening earnings gap with industry; absent this, universities may have lost over 40 percent of their top faculty by the 1930s. By tracing how academia develops into a distinct social institution that privileges status derived from the creation of new knowledge, our study informs modern-day talent strategy, the design of research organizations, and responses to shocks to the institutions supporting science.