Labor Market Returns to School Quality in China

This dissertation carries out research dedicated to explore the impact of school quality on students' subsequent labor market earnings in China. Three distinctive datasets involving both urban and rural areas of China are used in the dissertation to investigate this issue: the Chinese General Social Survey (CGSS), China Health and Nutrition Survey (CHNS), and the Chinese Household and Income Project (CHIP). The paper's main empirical model follows Card and Krueger's two-step framework for modeling the impact of school quality on the labor market. In the first step, estimates of the rates of return to schooling are obtained for various provinces and cohorts in China, including 26 provinces (for which data is available) and four birth cohorts (namely 1946-1955, 1956-1965, 1966-1975, and 1976-1985). The second stage then uses these estimated rates of return to schooling as dependent variable, with two of the explanatory variables in the equation being variables that measure the level of school quality within each province back in time when the workers were of school-age, depending on the cohort to which they belong. The two measures of school quality utilized in the analysis are pupil/teacher ratio and expenditure per pupil. The results of the econometric analysis show great variation in rates of return to schooling among provinces and cohorts in China. Furthermore, the overall results show that, while the impact of pupil/teacher ratios on rates of return to schooling is statistically insignificant, the results are positive and statistically significant for expenditure per pupil. The sign and statistical significance of the school quality effects on rates of return to schooling are not different for men and women. However, the magnitude of the impact of increased expenditure per pupil on the rate of return to schooling for women is much higher than for men, even after correcting for selection bias. This dissertation also carries out a reduced-form analysis that examines the effects of school quality directly on labor market earnings, the results of which confirm that increases in school quality raise the average earnings of students.