References: Professor Francis Kramarz, CREST, ENSAE – Ecole polytechnique
Professor Roland Rathelot, CREST, ENSAE – Ecole polytechnique
Professor David Sraer, University of California Berkeley
Professor David Thesmar, MIT Sloan
Primary field: Labor economics
Secondary field: Public economics, Urban economics, Entrepreneurship
Do college expansion policies promote local economic development? This paper exploits a massive construction policy of new colleges in France over the 1990s to assess the causal effect of higher education establishments. First, I study their impact on education, firm dynamics, employment and wages at the city level. Leveraging the staggered implementation of the policy in an event-study design, I find a persistent rise in the level of education of the local workforce and in firm entry. Firm creation increases by 10% on average, in all major industries. The rise in (i) tradable and (ii) skill-intensive industries indicates that the effect is driven by the supply of educated workers rather than by an increase in local consumption. Incumbent firms experienced lower growth and a higher exit rate following the policy, suggesting displacement effects. Overall, the positive effects dominate resulting in increased economic activity in treated cities. Employment stays constant but is subject to large composition effects: it increases for young skilled workers but decreases for older workers. In addition, province-level analysis suggests that new colleges had non-negative spillover effects on surrounding areas. Finally, I complement city-level results with findings on the long-run individual effects. Relying on differences between cohorts induced by the timing of the policy, I find that cohorts directly exposed to the new colleges became more educated, more likely to be employed and hold more skilled positions.