Employer Learning and the Dynamics of Returns to Universities: Evidence from Chinese Elite Education during University Expansion

Abstract

This paper estimates the return to an elite university education over a college graduate’s career in contemporary China. We find a substantial premium for graduating from an elite Chinese university at the job entry that declines quickly in early career before starting to return subsequently. This pattern holds after allowing for university selectivity by including individual admission scores. It is entirely driven by the post-expansion cohorts who entered college after the higher education expansion that started in 1999. The pattern is more pronounced in coastal provinces and in economically more developed regions, where individual skills are highly rewarded in the labor market. The results are consistent with predictions of asymmetric employer learning models, both at the job entry and at the mid-career when individuals are up for promotions.