The Evolution of Talent Allocation into Academia: Institution-Building and Graduates’ Choices during Japan’s Industrialization

Higher technical-education institutions play an important role in training industrial scientists and engineers and generating new technologies. How well they perform this role, however, depends on their ability to recruit and retain talented faculty who have alternative options in industry; moreover, such allocation of talent in academia vs. industry is conditioned by path-dependencies in the evolution of these sectors. We examine the evolution of academia-industry occupational choices and talent allocation across sectors by utilizing unique data on the census of university-educated engineers from the first 40 cohorts since the inception of higher technical education in Japan. We find that academia disproportionately attracted top talent despite an increasing pay gap with industry, which we link to the institution-building process that increased non-monetary attractiveness of academic jobs. To quantitatively examine the evolution of non-pecuniary preferences for academic careers on the supply side, we estimate a dynamic model of occupational choice and find that top graduates from later cohorts, especially those who already showed exceptional talent at early stages of education, were more likely than earlier graduates to value non-pecuniary benefits offered by academia.