Sustained Higher Education Expansion and Firms' Productivity: Evidence From China

ABSTRACT This study investigates the relationship between China's sustained higher education expansion and the productivity of A‐share listed firms from 2004 to 2020. We find that a larger supply of university graduates is associated with significantly higher firm total factor productivity (TFP) on average, a result robust to extensive testing. Mechanism analysis points to three plausible channels: an increased share of skilled labor, strengthened innovation, and accelerated digital transformation. However, the relationship is asymmetric. While graduate inflows are linked to higher TFP in large, R&D‐intensive, and high‐intangible‐asset firms, they are linked to lower productivity in small firms. Specifically, this negative association is concentrated among small enterprises that are non‐state‐owned, labor‐intensive, and financially constrained, with low intangible assets. These findings provide new micro‐level evidence on the heterogeneous value of human capital, offering policy implications for better alignment of graduate supply with firm capabilities.