Geography or economics? A micro-level analysis of the determinants of degree choice in the context of regional economic disparities in the UK

The importance of human capital to the economic performance of a national, regional or local economy is now well established. Labour markets are thought to reward individuals in proportion to their marginal productivity and to encourage an efficient allocation of skilled workers. However, labour markets also provide signals to students about the return to a particular level or type of skill, which in turn affects the future supply of skilled workers. This paper explores how labour market conditions affect one aspect of this supply: through an impact on the subject an individual chooses to study for their undergraduate degree. Using a large micro-level dataset on graduates from British universities between 2004/5 and 2006/7, this paper implements a series of linear probability models in subject choice and makes several contributions to the existing literature. Firstly, it uses a more detailed classification of subjects than has hitherto been employed. Second, it examines the impact of local economic conditions on the student‟s subject choice. Thirdly, the time dimension of the dataset is used to implement fixed effects to control for several forms of endogeneity. The results suggest that personal and academic characteristics, such as gender, ethnicity and prior academic attainment, strongly affect degree choice and suggest that individuals endogenously select into particular areas and schools. It finds that local labour market signals do encourage individuals to take up particular degrees in preference to others, and raises several policy issues.