Knowledge Economies and the Political Economy of Skill Formation in Higher Education. a Comparison of Policies and Actors in Britain and Germany.

The expansion of higher education (HE) across advanced capitalist countries has been one of the main features of the 20^th century. Today, 50% or more of any given age cohort enrols in HE in most advanced capitalist countries shifting skill formation increasingly from the post-secondary to the tertiary level. In this context, universities have come under increasing pressure from governments and employers to align their educational offer to labour market needs and governments sought to steer closer cooperation between firms and universities in skill formation across Coordinated Market Economies (CMEs) and Liberal Market Economies (LMEs) alike. However, the mechanisms by which HE has come closer to employers remain largely unexplored despite this being an area of intense policy activity across countries and despite involving crucial actors in contemporary political economies, namely universities and employers. This paper aims to fill this gap by providing an institutional analysis of the relationship between the HE sector and employers across countries. The overarching question that the paper addresses is therefore the following: why has skill formation in HE emerged and /or gained prominence over the last three decades across countries characterised by traditionally different models of skill formation? Whilst the existing literature has (partially) touched upon this theme by looking at either the HE sector or labour market demands, the paper proposes a theoretical framework which includes both supply (i.e. the HE sector) and demand side (i.e. employers) allowing for multiple pathways leading to the emergence and development of skill formation in HE. In doing so, the paper brings together two streams of literature that have so far not interacted, namely the literature on HE (cf. Clark, 1983) and the CPE literature (cf. Hall & Soskice, 2001), which are combined through the lenses of neo-institutionalism (cf. Mahoney & Thelen, 2009; Streeck & Thelen, 2005). The hypotheses derived from the theoretical framework are tested through two case studies, Britain and Germany, which show how the mechanisms of skill formation in HE are shaped not only by employer preferences as assumed in the comparative political economy literature but also by universities – and by the structure of the HE sector within which universities operate. The paper argues that in order to understand cross-national patterns of adjustment to the knowledge economy in the realm of education and training policies, the role of universities should be systematically analysed, alongside the widely acknowledged role of employers. Building on document analysis and interviews with key stakeholders in government, business sector and HE sector, the paper shows how skill formation in HE is characterised by different actor relationships and institutional arrangements compared to skill formation in VET. Contrary to the expectations of persistent divergence, the paper shows a degree of convergence as far as skill formation in HE is concerned, albeit through different mechanisms of institutional change and driven by different actors: institutional change in Britain takes (predominantly) the form of university-led conversion, whilst employer-led layering appears to be the predominant mechanism of institutional change in Germany.