Does the Market Pay Off? Earnings Inequality and Returns to Education in Urban China

The paper examines earnings inequality and earnings returns to education in China among four types of workers characterized by their labor market history. Compared to workers staying in the state sector, early market entrants no longer enjoyed advantages. The commonly observed higher earnings returns to education in the market sector are only limited to recent market entrants. This results from the aggregation of two very different types of workers: those who were "pushed" and those who "jumped" into the market in later stage of the reform. The findings challenge the prevailing wisdom that education is necessarily more highly rewarded by the market sector.