The Supply of Skills and Endogenous Technical Change: Evidence from a College Expansion Reform

We examine the consequences of an exogenous increase in the supply of skilled labor in several cities in Norway, resulting from the construction of new colleges in the 1970s. We find that skilled wages increased as a response, which is suggestive of a skill biased demand shift. We interpret our findings using existing models of directed technical change, which predict that an abundance of skilled workers may encourage rms to use more skill-complementary technologies (Acemoglu, 1998, 2002, 2007). As a result, the demand for skill may increase, leading to an upward sloping demand curve in the long run.