A selection analysis of returns to education in China

This paper estimates the economic returns to education in China from 1989 to 2009, using the China Health and Nutrition Survey (CHNS) dataset. We find that education returns for one additional year generally increase from 2.6% in 1989 to 7.9% in 2009. Education returns, however, may reflect signals of innate ability, or the accumulation of human capital. Moreover, traditional Ordinary Least Square estimates may be biased by selection problems and mix-ups of age group heterogeneity. Hence, we estimate the marginal effects of schooling with the increasing labour markets experience, using the Heckman Selection Model. We find that the education returns for one additional year decline with labour markets experience, which support human capital hypothesis for all age groups except the group educated during the “Cultural Revolution”. Different dynamics of education returns in the four age groups are identified with large influence of institutional reforms in the labour markets, supporting the transition explanation of the evolution of education returns in China