Belton M. Fleishera, b, c, , , Yifan Hud, , Haizheng Lib, e, and Seonghoon Kima,
a Department of Economics, Ohio State University
b China Center for Human Resource and Labor Market Research, Central University of Finance and economics
c IZA
d CITIC Securities
e School of Economics, Georgia Institute of Technology

Received 6 February 2008;
revised 6 October 2009;
accepted 8 January 2010.
Available online 15 January 2010.


AbstractWe investigate the role of education on worker productivity and firms’ total factor productivity using a panel of firm level data from China. We estimate the returns to education by calculating the marginal productivity of workers of different education levels based on estimates of the firm-level production function. We also estimate how the education level of workers and CEO contributes to firms’ total factor productivity. Estimated marginal products are much higher than wages, and the gap is larger for highly educated workers. Our estimate shows that an additional year of schooling raises marginal product by 30.1 percent, and that CEO's education increases TFP for foreign invested firms. Estimates vary substantially across ownership classes, the effect of schooling on productivity being highest in foreign-invested firms. We infer that market mechanisms contribute to a more efficient use of human capital within firms.


Keywords: Productivity; Returns to Education; Marginal Product; Firm; China; Transition

JEL classification codes: O15; J31; J24; D24