Estimating returns to education using twins in urban China

Type Journal Article - Journal of Development Economics
Title Estimating returns to education using twins in urban China
Volume 97
Issue 2
Publication (Day/Month/Year) 2012
Page numbers 494-504
This paper empirically estimates the return to education using twins data that the authors collected from
urban China. Our ordinary least-squares estimate shows that one year of schooling increases an individual's
earnings by 8.4%. If we use a within-twin fixed effects model, the return is reduced to 2.7%, but rises to 3.8%
after the correction of measurement error. These results suggest that a large portion of the estimated returns
to education is due to omitted ability or the family effect. We further investigate why the true return is low
and the omitted ability bias high, and find evidence showing that it may be a consequence of China's
education system, which is highly selective and exam oriented. More specifically, we find that high school
education may mainly serve as a mechanism to select college students, but as a human capital investment per
se it has low returns in terms of earnings. In contrast, both vocational school education and college education
have a large return that is comparable to that found in the United States

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