Returns to College Education in China

Empirical work on the estimation of return to education has noted that unobserved heterogeneity should be substantial. Individuals with higher unobserved ability, or with higher unobserved payoffs from education, might invest more in education. Ignoring this phenomenon will lead to incorrect estimation and inferences regarding the causal effect of education. Using new methods that deal with heterogeneity, we estimate the effect on earnings of sending a person to college is a 51.66% increase in lifetime earnings(nearly 13% annually) in 2004 for people in three cities of China (Peking, Shanghai and Guangzhou). Our research result suggests that the return to higher education has increased substantially in China, especially compared to those measured in the 1980psilas and the 1990psilas.