Trends in the Mincerian Rates of Return to Education in Urban China: 1989–2009

Abstract

This study examines the trends in the Mincerian rates of return (MRRs) to education in urban China between 1989 and 2009 using two sources of data: the China Urban Household Survey and the China Health and Nutrition Survey, and attempts to explain the underlying causes of the trends. The authors find that while the rates of return to education had been rising steadily since 1992 in urban China, a trend consistent with earlier studies, they have stagnated and even shown a statistically insignificant and very small decline between 2004 and 2009. Using the conceptual framework of supply, demand and institution in labor economics, the authors show evidence that the rapid rise in MRRs since 1992 has been driven by the strong relative demand for skills and productivity unleashed by the market-oriented economic reforms of the late 1980s and 1990s when relative supply of skilled labor was by and large stable. However, the “great leap forward” in senior secondary and tertiary education since the late 1990s produced huge numbers of graduates by the mid-2000s, outpacing the growth of relative demand for skilled labor due to the economy’s overdependence on low value-added industries such as manufacturing and construction. The apparent slowdown in the deepening of marketization since the mid-2000s may have also contributed to the stagnation or slight decline in the returns to education in urban China.