Rates of Return to Four‐Year University Education: An Application of Regression Discontinuity Design

It is invariably difficult to estimate the rate of return to university education, because of the problem of omitted variable bias. Using a regression discontinuity design, we estimate the effect of a four‐year university education on earnings, and we explore the pathways through which the effect operates. Our estimation exploits the centralized, score‐based college/university admission system in China, where the minimum scores required for university admission are externally determined by the provincial governments. Our findings suggest that being eligible for four‐year university admission implies a sizable increase in earnings. The payoff can be attributed to the prolonged length of education and improvements in education quality, although the quality effects cannot be precisely estimated.