ABSTRACT

For any society, the economic returns to schooling provide important information about the incentives for individuals to invest in education, the efficiency of labor allocation in the economy, and the distributional consequences of differences in educational attainment.1 As such, the returns to schooling directly influence fundamental economic outcomes of growth and equity. In this chapter, we summarize results of an analysis of a unique repeated cross-sectional dataset spanning much of China’s economic reform period to estimate changes over time in the returns to schooling in urban China. We first evaluate past studies of the returns to education in China to establish the fact that returns to education were low in the 1980s and early 1990s. Second, we empirically estimate wage equations using regression analysis and demonstrate a rapid increase in the returns to education in urban China from 1988 to 2003. We verify the robustness of this trend by examining the sensitivity of our results to various specifications of the regression models and the inclusion of different control variables. Finally, we discuss how changes in the returns to education vary across groups defined on the basis of gender, experience, ownership, and region.