The changing pattern of wage returns to education in post-reform China

This paper examines the labor market returns to schooling in China during 2010–2015 by using two rounds of the China General Social Survey data. While our OLS estimates based on Mincerian earnings function confirm the importance of human capital in China's post-reform economy, they highlight a number of important changes in the labor market performance of educated workers. The average returns to schooling have declined during the study period, albeit modestly. The fall in returns is much larger in urban locations, coastal regions and among women (from 10.4%, 9.9% and 7.8% in 2010 to 8.3%, 7.8% and 6.3% in 2015 respectively). Workers with university diplomas and good English language skills continue to enjoy a high wage return. These findings are unchanged regardless of model specifications and corrections for endogeneity bias using conventional as well as Lewbel instrumental variable approaches. We discuss the potential explanations for the observed changes and their policy implications.