If We Build It, We Will Come: Institution Development in Academia 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, and training future scientific and engineering talent that fuels endogenous growth. Academia’s ability to perform this role, however, depends on recruiting and retaining talented faculty who often have lucrative alternative options in industry. Complementing existing literature focusing on factors in mature scientific labor markets, we study how this was addressed endogenously during Japan’s industrialization as academic and industrial institutions were still being formed. Combining historical analysis with a dynamic occupational choice model, we utilize unique data on the census of university-educated engineers from the first forty cohorts following the establishment of higher technical education in Japan. The historical analysis shows that incumbent faculty reshaped academic governance, redefined professional purpose towards research, and created research institutes as new organizational forms. Using causal evidence from the Institute of Aeronautics and structural estimation of career choices, we find that these institutional changes increased the non-pecuniary attractiveness of academic careers, allowing universities to keep attracting a disproportionate share of top talent despite a widening pay gap with industry. The findings demonstrate how non-pecuniary incentives emerge through institution building and how this reshapes organizational responses across academia, industry and state.