A model of glutting: human capital and labour markets in the long-run

Abstract

For over a century and a half, there have been cyclical phases of saturation and shortage in the numbers of students enrolled at German and Prussian universities. Starting from this observations, this article constructs a neoclassical glutting theory. A twofold hypothesis is put forward. First, the behaviour of students in their choice of curriculum depends on the expected rewards. Indeed, the allocation of students to the various faculties depends on the comparative yields of the latter in terms of expected earnings and job availability in the corresponding professional sectors. Thus, the rewards expected by a student are represented by the earnings on the labour market at a given moment and that he or she considers to be sustainable in time. Second, an attraction phenomenon may appear for certain curricula when a shortage occurs in different professional sectors. Once the shortage has been made up, the demand effect continues as a result of delay in the perception of the situation by young people. This may gradually lead to comparative over-production of qualified university leavers. This unbalanced situation diverts new cohorts of students to other sectors of education and may cause a new shortage, finally resulting in a cyclical movement modulated according to job availability.