Diverging College Premiums: A General Equilibrium Framework on China's College Expansion Policy

Shihui Ma ()
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Shihui Ma: School of Economics, Huazhong University of Science and Technology

Annals of Economics and Finance, 2021, vol. 22, issue 2, 289-315

Abstract: In 1999, the Chinese government launched a program to increase enrollment to tertiary education by 42% from the previous year. Following this large inflow of college graduates, college premiums show a diverging trend for workers of different age groups, with premiums decreasing immediately for young workers after the impacted cohort’s graduation, then gradually for senior ones in the late 2000s. Assuming imperfect substitutability of workers in different age and education groups, we propose an overlapping-generation model with endogenous educational choices to study the general equilibrium effects of the college expansion. The model successfully accounts for high-school and college graduates' life-cycle earning profiles and is applied to quantify both the long-run and transitional effects of college expansion policies. We find that compared to an alternative mild college expansion, the actual expansion generates overall welfare improvement, benefiting rural residents more than the urban group.

Keywords: College expansion; College wage premium; Higher education; Policy experiments (search for similar items in EconPapers)
JEL-codes: E24 I21 J24 J31 (search for similar items in EconPapers)
Date: 2021
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