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Explaining Rising Returns to Education in Urban China in the 1990s

  • Liu, Xuejun

    ()

    (Beijing Normal University)

  • Park, Albert

    ()

    (Hong Kong University of Science & Technology)

  • Zhao, Yaohui

    ()

    (Peking University)

Although theory predicts that international trade will decrease the relative demand for skilled workers in relatively skill-deficit countries, in recent decades many developing countries have experienced rising wage premiums for skilled workers. We examines this puzzle by quantifying the relative importance of different supply and demand factors in explaining the rapid increase in the returns to education experienced by China during the 1990s. Analyzing Chinese urban household survey and census data for six provinces, we find that although changes in the structure of demand did reduce the demand for skilled workers, consistent with trade theory, the magnitude of the effect was modest and more than offset by institutional reforms and technological changes that increased the relative demand for skill.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4872.

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Length: 43 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:iza:izadps:dp4872
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  1. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  2. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  3. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
  4. Yaohui Zhao, 1999. "Leaving the Countryside: Rural-to-Urban Migration Decisions in China," American Economic Review, American Economic Association, vol. 89(2), pages 281-286, May.
  5. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
  6. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," NBER Working Papers 12885, National Bureau of Economic Research, Inc.
  7. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  8. Harrison, Ann & Hanson, Gordon, 1999. "Who gains from trade reform? Some remaining puzzles," Journal of Development Economics, Elsevier, vol. 59(1), pages 125-154, June.
  9. Borjas, George J & Ramey, Valerie A, 1995. "Foreign Competition, Market Power, and Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1075-1110, November.
  10. Ho, Lok Sang & Wei, Xiangdong & Wong, Wai Chung, 2005. "The effect of outward processing trade on wage inequality: the Hong Kong case," Journal of International Economics, Elsevier, vol. 67(1), pages 241-257, September.
  11. Meng, Xin & Zhang, Junsen, 2001. "The Two-Tier Labor Market in Urban China: Occupational Segregation and Wage Differentials between Urban Residents and Rural Migrants in Shanghai," Journal of Comparative Economics, Elsevier, vol. 29(3), pages 485-504, September.
  12. Zhao, Yaohui, 1999. "Labor Migration and Earnings Differences: The Case of Rural China," Economic Development and Cultural Change, University of Chicago Press, vol. 47(4), pages 767-82, July.
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