Differential Rewards to, and Contributions of, Education in Urban China???s Segmented Labor Markets

Education???s role in determining worker incomes in China???s rapidly changing urban labor markets is investigated in this paper. Using worker data from a 1999-2000 urban enterprise survey, we examine the effects of education on the current earnings of continuously-employed urban workers, migrants, and laid off but subsequently re-employed workers, as well as on the most recent earnings of laid-off (but not subsequently re-employed) workers. We also decompose the earnings differentials between each of these groups of workers and then assess the contribution of education to explanations of the differentials. The empirical results demonstrate that educational attainment remains an important explanator of earnings differentials between institutionally-differentiated groups of workers in China???s urban labor markets. An interesting hierarchy of returns to education has developed. The education of migrants is generally poorly rewarded. The moderate returns to educational investments of the continuously-employed urban residents rank next. Re-employed urban residents experience the highest rewards to their education, especially those who used a competitive means to find their post-layoff employment. When we assess the earning differentials between groups using the continuously-employed urban residents as the basis of comparison, differences in educational attainments alone contribute between 16 and 52 percent of the explanation of the total inter-group wage gaps.