Selection bias, comparative advantage and heterogeneous returns to education: evidence from China in 2000

This paper uses Chinese micro data and new semi‐parametric methods to estimate the current return to college education allowing for heterogeneous returns and for self‐selection into schooling based on them. OLS and IV methods do not properly account for this sorting. Our estimates suggest that, for a randomly selected young person from an urban area, college attendance leads to a 43% increase in lifetime earnings (nearly 11% annually) in 2000, compared with just 36% (nearly 9% annually) for those who do not attend. Our evidence suggests that the return to education has increased substantially in China since the early 1990s.