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Diverging College Premiums: A General Equilibrium Framework on China's College Expansion Policy

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  • Shihui Ma

    (School of Economics, Huazhong University of Science and Technology)

Abstract

In 1999, the Chinese government launched a program to increase enrollment to tertiary education by 42% from the previous year. Following this large inflow of college graduates, college premiums show a diverging trend for workers of different age groups, with premiums decreasing immediately for young workers after the impacted cohort’s graduation, then gradually for senior ones in the late 2000s. Assuming imperfect substitutability of workers in different age and education groups, we propose an overlapping-generation model with endogenous educational choices to study the general equilibrium effects of the college expansion. The model successfully accounts for high-school and college graduates' life-cycle earning profiles and is applied to quantify both the long-run and transitional effects of college expansion policies. We find that compared to an alternative mild college expansion, the actual expansion generates overall welfare improvement, benefiting rural residents more than the urban group.

Suggested Citation

  • Shihui Ma, 2021. "Diverging College Premiums: A General Equilibrium Framework on China's College Expansion Policy," Annals of Economics and Finance, Society for AEF, vol. 22(2), pages 289-315, November.
    • Handle: RePEc:cuf:journl:y:2021:v:22:i:2:ma
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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