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Does Education Pay in Urban China? Estimating Returns to Education Using Twins

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  • Hongbin Li
  • Pak Wai Liu
  • Ning Ma
  • Junsen Zhang

Abstract

This paper empirically estimates the returns to education using twins data that the authors collected from urban China. Our ordinary least-squares estimate shows that one year of schooling increases an individual¡¦s earnings by 8.4 percent. However, once we use the within-twin-pair fixed effects model, the return is reduced to 2.7 percent, which suggests that much of the estimated returns to education in China that have been found in previous studies are due to omitted ability or the family effect. This finding suggests that well-educated people are faring well in China mainly because of their superior ability or family background advantages, rather than because of knowledge that they acquired at school. We further investigate why the true return is low and the omitted ability bias high, and find evidence that it may be a consequence of the distinct education system in China, which is highly selective and exam oriented. More specifically, we find that high school education mainly serves as a mechanism to select college students, and has zero returns in terms of earnings. In contrast, both vocational school education and college education have a large return that is comparable to that found in rich Western countries.

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Bibliographic Info

Paper provided by Chinese University of Hong Kong, Department of Economics in its series Discussion Papers with number 00013.

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Date of creation: Sep 2005
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Handle: RePEc:chk:cuhkdc:00013

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  1. Orley Ashenfelter & Cecilia Rouse, 1998. "Income, Schooling, And Ability: Evidence From A New Sample Of Identical Twins," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 253-284, February.
  2. Thomas Hertz, 2003. "Upward Bias in the Estimated Returns to Education: Evidence from South Africa," American Economic Review, American Economic Association, vol. 93(4), pages 1354-1368, September.
  3. Zhang, Junsen & Zhao, Yaohui & Park, Albert & Song, Xiaoqing, 2005. "Economic returns to schooling in urban China, 1988 to 2001," Journal of Comparative Economics, Elsevier, vol. 33(4), pages 730-752, December.
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  15. Rouse, Cecilia Elena, 1999. "Further estimates of the economic return to schooling from a new sample of twins," Economics of Education Review, Elsevier, vol. 18(2), pages 149-157, April.
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Cited by:
  1. Alan de Brauw & John Giles, 2005. "Migrant Opportunity and the Educational Attainment of Youth in Rural China," Department of Economics Working Papers 2005-05, Department of Economics, Williams College.
  2. Giles, John & Park, Albert & Wang, Meiyan, 2008. "The great proletarian cultural revolution, disruptions to education, and returns to schooling in urban China," Policy Research Working Paper Series 4729, The World Bank.
  3. Su, Biwei & Heshmati, Almas, 2011. "Analysis of Gender Wage Differential in China's Urban Labor Market," IZA Discussion Papers 6252, Institute for the Study of Labor (IZA).
  4. Shuang LI & Ming LU & Hiroshi Sato, 2008. "The Value of Power in China: How Do Party Membership and Social Networks Affect Pay in Different Ownership Sectors?," Global COE Hi-Stat Discussion Paper Series gd08-011, Institute of Economic Research, Hitotsubashi University.
  5. Faqin Lin & Can Huang & Xiaobo He & Chao Zhang, 2013. "Do more highly educated entrepreneurs matter?," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 27(2), pages 104-116, November.
  6. Wenshu Gao & Russell Smyth, 2012. "Returns to Schooling in Urban China, 2001-2010: Evidence from Three Waves of the China Urban Labor Survey," Development Research Unit Working Paper Series 50-12, Monash University, Department of Economics.
  7. Wang, Le, 2012. "Economic transition and college premium in urban China," China Economic Review, Elsevier, vol. 23(2), pages 238-252.
  8. Vinod Mishra & Russell Smyth, 2012. "Returns to Schooling in Urban China: New Evidence Using Heteroskedasticity Restrictions to Obtain Identification Without Exclusion Restrictions," Development Research Unit Working Paper Series 33-12, Monash University, Department of Economics.
  9. Liu, Chengfang & Zhang, Linxiu & Luo, Renfu & Wang, Xiaobing & Rozelle, Scott & Sharbono, Brian & Adams, Jennifer & Shi, Yaojiang & Yue, Ai & Li, Hongbin & Glauben, Thomas, 2011. "Early commitment on financial aid and college decision making of poor students: Evidence from a randomized evaluation in rural China," Economics of Education Review, Elsevier, vol. 30(4), pages 627-640, August.

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