The article develops a framework to explain an empirical observation that runs counter received wisdom in comparative political economy, namely the co-existence of large higher education systems and thriving manufacturing sectors in advanced capitalist countries. Introducing the concept of skill breadth, the article hypothesizes that: (i) advanced manufacturing firms have narrow skill needs concentrated around STEM skills; (ii) these skills are likely to be under-supplied by the higher education system unless dedicated public policies are put in place; and (iii) governments intervene in higher education policy to ensure the availability of those skills that are crucial for firms located in key sectors of national knowledge economies. Cross-country survey data of employer preferences for higher education graduates and case studies of recent higher education policy change in Germany and South Korea provide strong support for the argument. The article advances our overall understanding of skill formation systems in the knowledge economy and testifies to the persistent presence of policy levers that governments can employ to manage the economy and to support domestic firms. © 2021 John Wiley & Sons Australia, Ltd.
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