Understanding trends in Chinese skill premiums, 2007–2018

Abstract

The dramatic changes in China from expansion of the education system and transformation of the economy allow us to investigate how the market rewards skills. We estimate the evolution of the labor market returns to cognitive skills and to a college degree in China between 2007 and 2018. The return to cognitive skills is virtually constant at 10 % for full-time workers with at least a high school education, whereas the college premium (relative to high school graduation) drops by >20 percentage points. Regional differences in returns highlight the importance of differential demand factors. The returns to college degrees are somewhat higher in economically more developed regions but the declining trend is most pronounced in the most developed region. The return to cognitive skills weakly increases in more developed regions and weakly decreases in less developed regions. Overall returns to cognitive skills are comparable to more-developed OECD countries.