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 day economies rely on academia—with its focus on generating new knowledge and training future work forces—as a critical complement to industry in contributing to endogenous growth. How well academia performs this role, however, depends on its ability to recruit and retain talented faculty who have lucrative alternative options in industry. Such allocation of talent in academia vs. industry is conditioned by path-dependencies in the evolution of these sectors. We complement existing literature that has focused on factors in mature scientific labor markets by examining the endogenous evolution of academic institutions concurrent with industrialization in Japan during the turn of the 20th century. Our study combines historical methods with estimation of a dynamic occupational choice model and utilizes unique data on the census of university-educated engineers from the first 40 cohorts since the inception of higher technical education in Japan. The historical analysis reveals systematic shaping strategies to build institutions that catered to both monetary and non-monetary preferences. The quantitative estimations uncover the latter were particularly important in academia disproportionately attracting top talent in later cohorts, despite an increasing pay gap with industry.