This study uses the most recent household survey data from 2007 to estimate return to
education in urban China. Most existing literature are based on the data from 1990s and
early 2000s and find that the rate of return to education in urban China has experienced a
rapid increase. This study investigates whether the return to education is still in an
increasing trend in later 2000s and how the return to education changed in recent years.
The estimates of return in this study are lower than the findings in early 2000s. The
higher education expansion started in 1999 made unbalance supply and demand in labor
market, leading to unemployment for college graduates. This will reduce the over all
return to education. Based on the survey data from 2007, the return to education for male
and female do not show a significant difference. The return to education will be
underestimated when using annual earning instead of hourly wage, especially for workers
in private ownership sector, since the working hour bias the result. Finally, the return to
education in province with advantage in education is higher than poor education
province. Inequality of education is one of the factor influence the return to education and
income distribution.