Economic Restructuring and Children's Education: Lessons from China's State-Owned Enterprises Reform

Abstract

China's state-owned enterprises (SOEs) reform in the mid-1990s has greatly changed the distribution of labor earnings and family incomes in urban areas. This paper studies the impact of the reform-induced family income changes on children's educational attainment. I approach this question by exploiting variations in children's exposure to the policy change and in the shock intensity across sectors where these children’s parents initially worked. The empirical results show that after the shock, the earning gap between SOEs and non-SOE public organizations (hereinafter referred to as non-SOEs) was enlarged, and that SOE children were less likely to attend high school and college, compared with their non-SOE peers. Using additional geographical variations in economic structure, I find evidence of a negative externality, i.e., the impact of the shock was magnified in cities with a higher percentage of SOE workers before the reform. Furthermore, SOE children whose parents have fewer siblings were even more adversely affected.