Innovation, returns to education and skill-biased technological change in Great Britain

Abstract

Using the BHPS this paper demonstrates that the returns to education and the skill premium calculated by year-by-year and pooled OLS, Fixed Effects and Random Effects in average industries in Great Britain has still been high but decreased within the years 1991 to 2004. This development is due to a higher amount of university graduates since the Further and Higher Education Act from 1992 and the intense British economic growth. However, the additional return for working in an innovative industry “the personal innovation premium “ increased significantly during the investigated period leading to constant returns to years of education in innovative industries. The skill premium in innovative industries even increased because the high innovation premium over-compensates the declining skill premium in average industries. These results illustrate that the demand for highly educated and highly able university graduates is still very high in innovative industries, furthering skill-biased technological change in Great Britain.