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Explaining Rising Returns to Education in Urban China in the 1990s

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  • Xuejun Liu

    (China Center for Economic Research)

  • Albert Park
  • Yaohui Zhao

Abstract

Although theory predicts that international trade will decrease the relative demand for skilled workers in relatively skill-deficit countries, in recent decades many developing countries have experienced rising wage premiums for skilled workers. We examines this puzzle by quantifying the relative importance of different supply and demand factors in explaining the rapid increase in the returns to education experienced by China during the 1990s. Analyzing Chinese urban household survey and census data for six provinces, we find that although changes in the structure of demand did reduce the demand for skilled workers, consistent with trade theory, the magnitude of the effect was modest and more than offset by institutional reforms and technological changes that increased the relative demand for skill.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number 22720.

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Date of creation: Jan 2010
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Handle: RePEc:eab:tradew:22720

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Keywords: international trade; education; China; urban household survey;

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References

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  1. Katz, L.F. & Murphy, K.M., 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," Harvard Institute of Economic Research Working Papers 1580, Harvard - Institute of Economic Research.
  2. Ho, Lok Sang & Wei, Xiangdong & Wong, Wai Chung, 2005. "The effect of outward processing trade on wage inequality: the Hong Kong case," Journal of International Economics, Elsevier, vol. 67(1), pages 241-257, September.
  3. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed The Labor Market?," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1169-1213, November.
  4. Harrison, Ann & Hanson, Gordon, 1999. "Who gains from trade reform? Some remaining puzzles," Journal of Development Economics, Elsevier, vol. 59(1), pages 125-154, June.
  5. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  6. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  7. Zhao, Yaohui, 1999. "Labor Migration and Earnings Differences: The Case of Rural China," Economic Development and Cultural Change, University of Chicago Press, vol. 47(4), pages 767-82, July.
  8. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," NBER Working Papers 12885, National Bureau of Economic Research, Inc.
  9. Yaohui Zhao, 1999. "Leaving the Countryside: Rural-to-Urban Migration Decisions in China," American Economic Review, American Economic Association, vol. 89(2), pages 281-286, May.
  10. David Card & John E. DiNardo, 2002. "Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," NBER Working Papers 8769, National Bureau of Economic Research, Inc.
  11. Borjas, George J & Ramey, Valerie A, 1995. "Foreign Competition, Market Power, and Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1075-1110, November.
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Cited by:
  1. Wang, Le, 2012. "Economic transition and college premium in urban China," China Economic Review, Elsevier, vol. 23(2), pages 238-252.
  2. Lili Kang & Fei Peng, 2012. "A selection analysis of returns to education in China," Post-Communist Economies, Taylor & Francis Journals, vol. 24(4), pages 535-554, March.
  3. repec:wyi:journl:002165 is not listed on IDEAS
  4. Meng, Xin & Shen, Kailing & Xue, Sen, 2010. "Economic Reform, Education Expansion, and Earnings Inequality for Urban Males in China, 1988-2007," IZA Discussion Papers 4919, Institute for the Study of Labor (IZA).
  5. Xiangcai Meng & Azhong Ye, 2009. "Human Capital Externality, Knowledge Spillover, and Sustainable Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 10(1), pages 155-198, May.

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