Higher Education Expansion and the Rise of the Skill-Intensive Service Sector

Download paper: Github, Dropbox

Vietnam established over 100 new universities during 2006 and 2013, rapidly improving access to higher education in this country. I examine the impacts of this labor supply shock on the rise of the skill-intensive service sector and the general equilibrium implications for local labor markets and economic growth. The expansion induces both firms and workers to reallocate away from agriculture and basic services, and into skill-intensive service industries. This reallocation raises the overall employment rate, hourly wages and firm-level total factor productivity. The implied returns to higher education is 41%, but the reallocation effect raises the returns by 4 times.