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How Does Education Affect the Earnings Distribution in Urban China?

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  • Wang, Le

    () (University of Oklahoma)

Abstract

China's phenomenal growth is accompanied by both relatively low level of standards of living and high inequality. It is widely believe that investing in education could be an effective strategy to promote higher standards of living as well as to reduce inequality. However, little is known about whether this belief is empirically supported. To this end, we employ a recently developed distributional approach to estimate returns to education across the whole earnings distribution in urban China during economic transition. We find that returns to education are generally more pronounced for individuals in the lower tail of the earnings distribution than for those in the upper tail, in stark contrast to the results found in developed countries. Our result implies that education indeed reduces earnings inequality while increasing individuals' earnings. We also find that the returns to education are uniformly larger for women than for men across the distribution. The results suggest the presence of added effects of education on earnings, as opposed to productivity-enhancing effects, for disadvantaged groups. Finally, we find that rates of educational return increased over time for all parts of the earnings distribution.

Suggested Citation

  • Wang, Le, 2011. "How Does Education Affect the Earnings Distribution in Urban China?," IZA Discussion Papers 6173, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6173
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    Cited by:

    1. Hare, Denise, 2016. "What accounts for the decline in labor force participation among married women in urban China, 1991–2011?," China Economic Review, Elsevier, vol. 38(C), pages 251-266.
    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. Kumara, Ajantha Sisira, 2015. "Wage Differentials in Sri Lanka: The case of a post-conflict country with a free education policy," MPRA Paper 68068, University Library of Munich, Germany, revised 25 Nov 2015.
    4. Yu, Nannan & Yu, Bo & de Jong, Martin & Storm, Servaas, 2015. "Does inequality in educational attainment matter for China's economic growth?," International Journal of Educational Development, Elsevier, vol. 41(C), pages 164-173.
    5. Ghosh, Pallab Kumar, 2014. "The contribution of human capital variables to changes in the wage distribution function," Labour Economics, Elsevier, vol. 28(C), pages 58-69.
    6. Balestra, Simone & Backes-Gellner, Uschi, 2017. "Heterogeneous returns to education over the wage distribution: Who profits the most?," Labour Economics, Elsevier, vol. 44(C), pages 89-105.
    7. Mishra, Vinod & Smyth, Russell, 2015. "Estimating returns to schooling in urban China using conventional and heteroskedasticity-based instruments," Economic Modelling, Elsevier, vol. 47(C), pages 166-173.
    8. Tiago Neves Sequeira & Marcelo Santos & Alexandra Ferreira-Lopes, 2017. "Income Inequality, TFP, and Human Capital," The Economic Record, The Economic Society of Australia, vol. 93(300), pages 89-111, March.
    9. Wang, Le, 2013. "Estimating returns to education when the IV sample is selective," Labour Economics, Elsevier, vol. 21(C), pages 74-85.
    10. Heckman, James J. & Yi, Junjian, 2012. "Human Capital, Economic Growth, and Inequality in China," IZA Discussion Papers 6550, Institute for the Study of Labor (IZA).
    11. Ivar Kolstad & Arne Wiig, 2015. "Education and entrepreneurial success," Small Business Economics, Springer, vol. 44(4), pages 783-796, April.
    12. Hu, Feng, 2015. "Return to Education for China’s Return Migrant Entrepreneurs," World Development, Elsevier, vol. 72(C), pages 296-307.
    13. Simone Balestra & Uschi Backes-Gellner, 2013. "Heterogeneous Returns to Education Over Wage Distribution: Who Profits the Most?," Economics of Education Working Paper Series 0091, University of Zurich, Department of Business Administration (IBW), revised Dec 2013.
    14. 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.
    15. repec:eee:joecag:v:8:y:2016:i:c:p:76-84 is not listed on IDEAS

    More about this item

    Keywords

    instrumental variable quantile regression; economic transition; gender gap; inequality; returns to education;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J7 - Labor and Demographic Economics - - Labor Discrimination
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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