Using annual urban household survey data from 6 provinces in different regions of
China, we analyze reasons behind the rise in education premium in urban China
during the 1990s. Following Bound and Johnson (1992), we decompose the increase
in education premium into four sources: changes in industrial wage rents, shifts in
supply across educational levels, shifts in product demand across industries, and
changes in relative technical efficiency. Our basic findings are: the increase in general
technical efficiency and industrial wage rents are the major forces that drive up the
relative wage of more-educated to less educated workers, shift in labor supply helps to
lessen the pressure on the labor demand for more-educated workers, and the change in
labor demand due to the shift in product demand also reduces educational wage
differential but is relatively unimportant