RETURNS TO EDUCATION UNDER THE HUKOU SYSTEM: WHAT IS THE ROLE OF SCHOOL TYPE?

Purpose – Estimating the gap in returns to education between China’s urban and rural areas based solely on education attainment can be misleading, especially when there are significant differences in the allocation of educational resources between urban and rural areas. This paper explores the relationship between school types, primarily representing the educational resources available in China, and education returns in urban and rural China under the Hukou system.Methodology – This paper used data from the 2013 Chinese Household Income Project (CHIP) and applied the OLS method to estimate the traditional Mincer and extended models by adding school types.Results – Firstly, we found that school types significantly impact income, and different types of schools have different returns on education. The returns to school type increase with the geographical administrative level of the school. In addition, in most cases, the impact of key schools on the income of urban people is more significant than that of rural people. Secondly, when we consider the effect of school type on income, the gap in education returns between non-agricultural Hukou groups and agricultural Hukou groups is widened compared to the results under the traditional Mincer model. Finally, migration does not appear to have brought the desired improvement to their education, with the returns to education for migrants being significantly lower than rural in some cases.Implications – For individuals, especially those rural Hukou holders, investment in education should be strengthened to improve access to key schools. Providing equal access to quality education and reducing educational disparities between urban and rural areas is essential for the government.Originality/Value – The results highlight the role of inequality in the allocation of educational resources and the inequality of educational opportunities among the groups with different Hukou statuses and also show that migrating to urban areas may place migrants in a more adverse environment.