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Private returns to education in urban China

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Abstract

The paper examines the marginal returns of education in China for 4 years covering the period 1989–2000. We find, in common, with others that such returns were small in 1989 and 1993, but have increased steadily since 1993. We also find that the returns for women exceed those for men and go some way to reducing the gender earnings gap. Crucially, however, the returns to education decline with the length of time since the individual left school which is consistent with the hypothesis that education enhances ability and skills which in turn enhances earnings, but that the value of such skills deteriorates over time. Finally we find evidence for gravity effects by which earnings decline with distance from Beijing, and more noticeably, Shanghai.

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Notes

  1. Some studies also include occupations in the wage function. It seems likely that occupations and wages are jointly determined, in other words, simultaneity may exist between them. Moreover, a high degree of multicollinearity exists between schooling and occupation (Li 2003). Psacharopoulos and Patrinos (2004) also argued that the inclusion of occupation in the Mincer’s earnings function leads to stealing part of the effect of education on earnings that comes from occupational mobility.

  2. There exists the possibility that education both augments and signals individual productivity based on weak screening hypothesis (see e.g., Brown and Sessions 1998). Thus our hypothesis (1) indicates the primary role of education is to augment marginal productivity.

  3. Here we incorporate the assumption by Riley (1979) and Farber and Gibbons (1996) that the return to an educational signal is constant over time. They argued that a basic condition for a signalling equilibrium is that employers find out that their predictions based on the education signals are correct on average, thus the return to an educational signal is constant over time.

  4. The estimated change in earnings Y i for individual i is calculated by (\( {\text{e}}^{{\beta_{1i} }} - 1 \)).

  5. This shows that returns are usually higher for females, in other countries; see Psacharopoulos and Patrinos (2004) and Dougherty (2005).

  6. However, the two variables are jointly significant at the 1% level. In addition, when the regression was re-estimated with squared experience omitted, experience per se was positively significant.

  7. This may partially reflect a declining impact of seniority and an increasing role for market forces, but it may also reflect changes in the system of subsidies, e.g. the appearance of the accommodation or housing subsidy subsidy. This cash subsidy replaced in kind housing subsidies and were meant to facilitate urban residents’ abilities to meet their housing needs in the open market (Lee and Zhu 2006).

  8. Breusch-Pagan Lagrangian multiplier.

  9. This is different to the argument that experience becomes relatively more important in later working life and schooling relatively less important, This is reflected in the significance of experience in the regressions. But we argue that in addition to this, skills learnt in formal education become less useful over time in a technically changing environment.

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Authors and Affiliations

  1. Centre for Research in Medical and Dental Education (CRMDE), The University of Birmingham, Birmingham, UK

    Tian Qiu

  2. Department of Economics, University of Bath, Bath, BA2 7AY, UK

    John Hudson

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  1. Tian Qiu
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  2. John Hudson
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Correspondence to John Hudson.

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We would like to acknowledge the helpful comments of an anonymous referee.

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Qiu, T., Hudson, J. Private returns to education in urban China. Econ Change Restruct 43, 131–150 (2010). https://doi.org/10.1007/s10644-009-9081-9

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