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Improving the Accuracy of Estimated Returns to Education in China¡ªBased on Employment Rate, Career Length, and Income Growth

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  • Binlei Gong

    (Department of Agricultural Economics and Management, China Academy for Rural Development (CARD), Zhejiang University, Hangzhou 310058, China)

Abstract

Most empirical studies on the returns to education use current income to proxy for lifetime income due to the lack of longitudinal data. This simplification is found to cause biased estimates and the result is conditional on being employed. This paper quantifies the returns to education with heterogeneity in employment rates, career lengths, and income growth rates. Using data from China, this paper attempts to account for these differences across the life-cycle and estimates the returns to education in terms of lifetime income when actual lifetime earnings data are not available. The model clarifies the mathematical relationship between conditional current returns to education, unconditional current returns to education, and unconditional lifetime returns to education. This new approach explains how employment rates, career lengths, and income growth rates affect the direction and magnitude of the bias in estimating the returns to education.

Suggested Citation

  • Binlei Gong, 2017. "Improving the Accuracy of Estimated Returns to Education in China¡ªBased on Employment Rate, Career Length, and Income Growth," Frontiers of Economics in China, IAR, Shanghai University of Finance and Economics, vol. 12(1), pages 113-131, March.
  • Handle: RePEc:fec:journl:v:12:y:2017:i:1:p:113-131
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0006-4
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    More about this item

    Keywords

    current and lifetime income; returns to education; urban-rural disparity; labor migration in China;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • 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

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