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Estimating returns to education using twins in urban China

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  • Li, Hongbin
  • Liu, Pak Wai
  • Zhang, Junsen

Abstract

This paper empirically estimates the return 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%. If we use a within-twin fixed effects model, the return is reduced to 2.7%, but rises to 3.8% after the correction of measurement error. These results suggest that a large portion of the estimated returns to education is due to omitted ability or the family effect. We further investigate why the true return is low and the omitted ability bias high, and find evidence showing that it may be a consequence of China's education system, which is highly selective and exam oriented. More specifically, we find that high school education may mainly serve as a mechanism to select college students, but as a human capital investment per se it has low 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 the United States.

Suggested Citation

  • Li, Hongbin & Liu, Pak Wai & Zhang, Junsen, 2012. "Estimating returns to education using twins in urban China," Journal of Development Economics, Elsevier, vol. 97(2), pages 494-504.
  • Handle: RePEc:eee:deveco:v:97:y:2012:i:2:p:494-504
    DOI: 10.1016/j.jdeveco.2011.05.009
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    References listed on IDEAS

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    Cited by:

    1. Mark Rosenzweig & Junsen Zhang, 2014. "Co-residence, Life-Cycle Savings and Inter- Generational Support in Urban China," Working Papers 1039, Economic Growth Center, Yale University.
    2. Vinod Mishra & Russell Smyth, 2012. "Returns to Schooling in Urban China: New Evidence Using Heteroskedasticity Restrictions to Obtain Identification Without Exclusion Restrictions," Monash Economics Working Papers 33-12, Monash University, Department of Economics.
    3. Wei Huang & Xiaoyan Lei & Yaohui Zhao, 2016. "One-Child Policy and the Rise of Man-Made Twins," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 467-476, July.
    4. Soo Hong Chew & Junjian Yi & Junsen Zhang & Songfa Zhong, 2017. "Risk Aversion and Son Preference: Experimental Evidence from Chinese Twin Parents," Working Papers 2017-028, Human Capital and Economic Opportunity Working Group.
    5. Albert Park & John Giles & Meiyan Wang, 2015. "The Great Proletarian Cultural Revolution, Disruptions to Education, and the Returns to Schooling in Urban China," HKUST IEMS Working Paper Series 2015-21, HKUST Institute for Emerging Market Studies, revised Mar 2015.
    6. Yao, Yang, 2014. "The Chinese Growth Miracle," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 7, pages 943-1031 Elsevier.
    7. Wei-Bin ZHANG, 2014. "Human Capital, Wealth, and Renewable Resources," Expert Journal of Economics, Sprint Investify, vol. 2(1), pages 1-20.
    8. repec:etc:journl:y:2018:i:17:p:122-145 is not listed on IDEAS
    9. Hyytinen, Ari & Ilmakunnas, Pekka & Toivanen, Otto, 2013. "The return-to-entrepreneurship puzzle," Labour Economics, Elsevier, vol. 20(C), pages 57-67.
    10. Behrman, Jere R. & Xiong, Yanyan & Zhang, Junsen, 2015. "Cross-sectional schooling-health associations misrepresented causal schooling effects on adult health and health-related behaviors: Evidence from the Chinese Adults Twins Survey," Social Science & Medicine, Elsevier, vol. 127(C), pages 190-197.
    11. repec:eee:joecag:v:8:y:2016:i:c:p:76-84 is not listed on IDEAS
    12. Wei-Bin Zhang, 2013. "Education, Endogenous Human Capital, and Monetary Economic Growth with MIU Approach," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 7(2), pages 100-118, July.
    13. repec:eee:chieco:v:46:y:2017:i:c:p:10-26 is not listed on IDEAS
    14. Matthew Calver, 2015. "Closing the Aboriginal Education Gap in Canada: The Impact on Employment, GDP, and Labour Productivity," International Productivity Monitor, Centre for the Study of Living Standards, vol. 28, pages 27-46, Spring.
    15. Bai, Yunli & Zhang, Linxiu & Yi, Hongmei & Zheng, Liming & Rozelle, Scott, 2017. "The Impact of an Academic High School Tuition Relief Program on Students’ Matriculation into High Schools in Rural China," China Economic Review, Elsevier, vol. 43(C), pages 16-28.
    16. Guo, Qian & Sun, Wenkai, 2014. "Economic returns to English proficiency for college graduates in mainland China," China Economic Review, Elsevier, vol. 30(C), pages 290-300.
    17. Dumauli, Magdalena Triasih, 2015. "Estimate of the private return on education in Indonesia: Evidence from sibling data," International Journal of Educational Development, Elsevier, vol. 42(C), pages 14-24.
    18. Sefa Awaworyi & Vinod Mishra, 2014. "Returns to Education in China: A Meta-analysis," Monash Economics Working Papers 41-14, Monash University, Department of Economics.
    19. Soo Hong Chew & Junjian Yi & Junsen Zhang & Songfa Zhong, 2016. "Education and anomalies in decision making: Experimental evidence from Chinese adult twins," Journal of Risk and Uncertainty, Springer, vol. 53(2), pages 163-200, December.
    20. Hu, Feng, 2015. "Return to Education for China’s Return Migrant Entrepreneurs," World Development, Elsevier, vol. 72(C), pages 296-307.

    More about this item

    Keywords

    Returns to education; Twins; China;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General

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