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How Does Education Affect the Earnings Distribution in Urban China?

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  • Wang, Le

    ()
    (University of Alabama)

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Abstract

China's phenomenal growth is accompanied by both relatively low level of standards of living and high inequality. It is widely believe that investing in education could be an effective strategy to promote higher standards of living as well as to reduce inequality. However, little is known about whether this belief is empirically supported. To this end, we employ a recently developed distributional approach to estimate returns to education across the whole earnings distribution in urban China during economic transition. We find that returns to education are generally more pronounced for individuals in the lower tail of the earnings distribution than for those in the upper tail, in stark contrast to the results found in developed countries. Our result implies that education indeed reduces earnings inequality while increasing individuals' earnings. We also find that the returns to education are uniformly larger for women than for men across the distribution. The results suggest the presence of added effects of education on earnings, as opposed to productivity-enhancing effects, for disadvantaged groups. Finally, we find that rates of educational return increased over time for all parts of the earnings distribution.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6173.

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Length: 51 pages
Date of creation: Nov 2011
Date of revision:
Publication status: published online in: Oxford Bulletin of Economics and Statistics, 2012, [Early View]
Handle: RePEc:iza:izadps:dp6173

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Keywords: instrumental variable quantile regression; economic transition; gender gap; inequality; returns to education;

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References

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  1. Schennach, Susanne M., 2008. "Quantile Regression With Mismeasured Covariates," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 24(04), pages 1010-1043, August.
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  3. Wang, Xiaojun & Fleisher, Belton M. & Li, Haizheng & Li, Shi, 2007. "Access to Higher Education and Inequality: The Chinese Experiment," IZA Discussion Papers 2823, Institute for the Study of Labor (IZA).
  4. Harmon, Colm & Hogan, Vincent & Walker, Ian, 2003. "Dispersion in the economic return to schooling," Labour Economics, Elsevier, Elsevier, vol. 10(2), pages 205-214, April.
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  6. John Gibson & Bonggeun Kim, 2007. "Measurement Error in Long-term Retrospective Recall Surveys Of Earnings," Working Papers in Economics, University of Waikato, Department of Economics 07/03, University of Waikato, Department of Economics.
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  11. Fleisher, Belton M. & Peter, Klara Sabirianova & Wang, Xiaojun, 2004. "Returns to Skills and the Speed of Reforms: Evidence from Central and Eastern Europe, China, and Russia," IZA Discussion Papers 1182, Institute for the Study of Labor (IZA).
  12. Fleisher, Belton M. & Wang, Xiaojun, 2004. "Skill differentials, return to schooling, and market segmentation in a transition economy: the case of Mainland China," Journal of Development Economics, Elsevier, Elsevier, vol. 73(1), pages 315-328, February.
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  14. 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.
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  16. Patrinos, Harry Anthony & Ridao-Cano, Cris & Sakellariou, Chris, 2006. "Estimating the returns to education : accounting for heterogeneity in ability," Policy Research Working Paper Series 4040, The World Bank.
  17. Yang, Dennis T. & Chen, Vivian & Monarch, Ryan, 2010. "Rising Wages: Has China Lost Its Global Labor Advantage?," IZA Discussion Papers 5008, Institute for the Study of Labor (IZA).
  18. Fan, Shenggen & Kanbur, Ravi & Zhang, Xiaobo, 2008. "Regional Inequality In China: An Overview," Working Papers, Cornell University, Department of Applied Economics and Management 51157, Cornell University, Department of Applied Economics and Management.
  19. Millimet Daniel L & Wang Le, 2006. "A Distributional Analysis of the Gender Earnings Gap in Urban China," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-50, February.
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  21. Martins, Pedro S. & Pereira, Pedro T., 2004. "Does education reduce wage inequality? Quantile regression evidence from 16 countries," Labour Economics, Elsevier, Elsevier, vol. 11(3), pages 355-371, June.
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Cited by:
  1. 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, Monash University, Department of Economics 50-12, Monash University, Department of Economics.
  2. Sequeira, Tiago & Santos, Marcelo & Ferreira-Lopes, Alexandra, 2014. "Income Inequality, TFP, and Human Capital," MPRA Paper 55471, University Library of Munich, Germany.
  3. Wang, Le, 2012. "Estimating Returns to Education when the IV Sample is Selective," IZA Discussion Papers 7103, Institute for the Study of Labor (IZA).
  4. 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, Monash University, Department of Economics 33-12, Monash University, Department of Economics.
  5. Simone Balestra & Uschi Backes-Gellner, 2013. "Heterogeneous Returns to Education Over Wage Distribution: Who Pro ts the Most?," Economics of Education Working Paper Series, University of Zurich, Institute for Strategy and Business Economics (ISU) 0091, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Dec 2013.
  6. Heckman, James J. & Yi, Junjian, 2012. "Human Capital, Economic Growth, and Inequality in China," IZA Discussion Papers 6550, Institute for the Study of Labor (IZA).

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