The economic value of language in China: How important is Mandarin proficiency in the Chinese labor market? A bounding approach

Abstract

To shed light on the effectiveness of promoting the use of Mandarin, this paper analyses the economic value of Mandarin in the Chinese labor market using data from the 2016 wave of the China Labor-force Dynamics Survey. To address the self-selection issue, we use both an instrumental variable (IV) and nonparametric bounding approaches. Our results show that the overall return on Mandarin proficiency is positive, ranging from 10.5% to 49.9% across the whole sample. A driving mechanism is that workers with a high Mandarin proficiency are more likely to find jobs that match their expertise, which then increases their productivity in the workplace. We also find that the returns are heterogeneous across different subgroups: (1) Women benefit more than men, which suggests that language proficiency can help reduce the gender wage gap; (2) The return on Mandarin proficiency is statistically significant and positive for young and middle-aged workers, but there is not enough evidence for older workers; (3) The return is larger for individuals living in urban areas than those in rural areas. In addition, we find that the IV method cannot be extrapolated to obtain the marginal returns across different treatment groups, as its coefficient is incredibly large, thus overestimating the economic returns on Mandarin proficiency.