Does vocational education pay off in China? Evidence from city-level education supply shocks

China hosts the world's largest secondary education sector: more than 14 million adolescents enrol in secondary academic and vocational schools every year. Despite the large literature on returns to education, little evidence exists as to how these two streams compare in the country. Using 2013 China Household Income Project data, we estimate the returns to secondary vocational education both at the mean and along the conditional wage distribution. We use instrumental variables based on the considerable variation in education provision across cities and years (and a 1995 policy reform). We find that vocational education generates a large wage premium (up to 54%), especially for those of lower earnings potential. Our findings indicate that vocational education can be a good option for those who do not wish to enter tertiary education, especially the less well-off. • The study estimates the earnings effects of secondary vocational education in China. • We exploit variation in education provision across cities and years for causal analysis. • Secondary vocational education can deliver large returns compared to academic education. • The vocational wage premium is higher for those of lower earnings potential. • Vocational education can play a major role in human capital, particularly for disadvantageous groups.