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. Classical theory suggests that while imperfect, labour markets reward highly-skilled individuals in proportion to their marginal productivity and, through the wage mechanism and migration, efficiently allocate 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 will explore how local labour markets affect one aspect of the supply of human capital, through their effect on students' choice of degree subject. The literature on graduate behaviour in the UK is substantial, highlighting the different migration behaviours of men and women (Faggian, McCann & Sheppard, 2007a), of people from different countries within the UK (Faggian, McCann & Sheppard, 2007b) and across ethnic groups (Faggian, McCann & Sheppard, 2006). Several papers have explored the determinants of degree performance (Smith & Naylor, 2004, 2005), while still others have focussed on the return to a degree and the implications for the regional economy of large in- or out-flows of graduate talent (Faggian & McCann, 2006, 2009). However, relatively little attention has yet been paid to the subject choice made by each student, in spite of the important role that this decision can play in determining future career paths, lifetime income and geographical location. This paper will contribute to the literature by analysing, for the first time, how local labour markets affect the subjects graduates choose to study while controlling for individual, parental and schooling characteristics. Using a large micro-level dataset it will shed light on the determinants of degree choice at the individual level and attempt to establish whether students respond to local labour market signals when deciding on the most appropriate course of training. It will also consider whether the subject choice made by individuals from particular social groups or geographical areas is inhibited by their background or physical location and address a range of related policy issues.