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Does Education Pay in Urban China? Estimating Returns to Education Using Twins

Author

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  • Hongbin Li
  • Pak Wai Liu
  • Ning Ma
  • Junsen Zhang

Abstract

This paper empirically estimates the returns 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 percent. However, once we use the within-twin-pair fixed effects model, the return is reduced to 2.7 percent, which suggests that much of the estimated returns to education in China that have been found in previous studies are due to omitted ability or the family effect. This finding suggests that well-educated people are faring well in China mainly because of their superior ability or family background advantages, rather than because of knowledge that they acquired at school. We further investigate why the true return is low and the omitted ability bias high, and find evidence that it may be a consequence of the distinct education system in China, which is highly selective and exam oriented. More specifically, we find that high school education mainly serves as a mechanism to select college students, and has zero 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 rich Western countries.

Suggested Citation

  • Hongbin Li & Pak Wai Liu & Ning Ma & Junsen Zhang, 2005. "Does Education Pay in Urban China? Estimating Returns to Education Using Twins," Discussion Papers 00013, Chinese University of Hong Kong, Department of Economics.
  • Handle: RePEc:chk:cuhkdc:00013
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    File URL: http://www.econ.cuhk.edu.hk/~discusspaper/00013.pdf
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    References listed on IDEAS

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    3. 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.
    4. Shuang LI & Ming LU & Hiroshi Sato, 2008. "The Value of Power in China: How Do Party Membership and Social Networks Affect Pay in Different Ownership Sectors?," Global COE Hi-Stat Discussion Paper Series gd08-011, Institute of Economic Research, Hitotsubashi University.
    5. M Niaz Asadullah & Saizi Xiao, 2019. "Labor Market Returns to Education and English Language Skills in the People's Republic of China: An Update," Asian Development Review, MIT Press, vol. 36(1), pages 80-111, March.
    6. John Giles & Albert Park & Meiyan Wang, 2019. "The Great Proletarian Cultural Revolution, Disruptions to Education, and the Returns to Schooling in Urban China," Economic Development and Cultural Change, University of Chicago Press, vol. 68(1), pages 131-164.
    7. Liu, Chengfang & Zhang, Linxiu & Luo, Renfu & Wang, Xiaobing & Rozelle, Scott & Sharbono, Brian & Adams, Jennifer & Shi, Yaojiang & Yue, Ai & Li, Hongbin & Glauben, Thomas, 2011. "Early commitment on financial aid and college decision making of poor students: Evidence from a randomized evaluation in rural China," Economics of Education Review, Elsevier, vol. 30(4), pages 627-640, August.
    8. Alan de Brauw & John Giles, 2017. "Migrant Opportunity and the Educational Attainment of Youth in Rural China," Journal of Human Resources, University of Wisconsin Press, vol. 52(1), pages 272-311.
    9. Renfu Luo & Yaojiang Shi & Linxiu Zhang & Chengfang Liu & Scott Rozelle & Brian Sharbono & Ai Yue & Qiran Zhao & Reynaldo Martorell, 2012. "Nutrition and Educational Performance in Rural China's Elementary Schools: Results of a Randomized Control Trial in Shaanxi Province," Economic Development and Cultural Change, University of Chicago Press, vol. 60(4), pages 735-772.
    10. Almas Heshmati & Biwei Su, 2017. "Analysis Of Gender Wage Differential In China’S Urban Labor Market," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(02), pages 423-445, June.
    11. Wang, Le, 2012. "Economic transition and college premium in urban China," China Economic Review, Elsevier, vol. 23(2), pages 238-252.
    12. Wenshu Gao & Russell Smyth, 2012. "Returns to Schooling in Urban China, 2001-2010: Evidence from Three Waves of the China Urban Labor Survey," Monash Economics Working Papers 50-12, Monash University, Department of Economics.
    13. Faqin Lin & Can Huang & Xiaobo He & Chao Zhang, 2013. "Do more highly educated entrepreneurs matter?," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 27(2), pages 104-116, November.

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    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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