5. The Returns to Education in China: Evidence from the 1986 Compulsory Education Law

Education plays an important role in determining labor-market performance and returns, with better-educated individuals generally receiving higher earnings. Educational levels of a labor force may also help to explain the trajectory of economic growth in various countries (Becker 1964; Griliches 1970). In a seminal contribution to understanding this relationship, Mincer (1974) presented a human capital framework of education and earnings determination, spawning a large literature in which the natural logarithm of individual earnings—measured as annual, monthly, and/or hourly wages—is an additive function of education (in years of schooling or attainment of a high school diploma/college degree), working experience, and other factors. More recent studies have investigated the extent to which the correlation between educational attainment and earnings is causal (Card 1999). Education may well be endogenous, because, for example, higher inherent ability may lead individuals both to secure more education and to achieve higher earnings. To deal with the endogeneity, some studies have employed twins ’ data to control for family background and inherent ability. Other studies have used various other measures, such as the institutional features of an educational system, to instrument for individual educational attainment. Several landmark studies that corrected for the endogeneity of education, using datasets from the 1960s and 1970s, concluded that one additional year of schooling in the United States or Europe boosted earnings by 10 percent or more (Card 1999).