Can Educational Expansion Improve Income Inequality in China
Ning Guangjie

Nankai University

ABSTRACT

Can Educational Expansion Improve Income Inequality in China?
Evidences from the CHNS 1997 and 2006 Data


Rapid education expansion and rising income inequality are two striking phenomena
occurring in China during the transitional period. Using the China Health and Nutrition Survey
(CHNS) data collected in 1997 and 2006, this paper studies how education affects individual
earnings during the transitional process. We find that education accounts for only a small
fraction of personal earnings and income gap between different groups. We analyze the
underlying mechanism of the impact of education on earnings. More educated people tend to
enter state-owned sectors, have a low probability of changing jobs in the labor market and
work less time; all of these will have a pronounced impact on earning and income inequality.
Quantile regression analysis shows that the low-income group’s education return rate is
lower, which helps little in narrowing income gap. We decompose the earning gap into four
factors: population effect, price effect, labor choice effect and unobservable effect. In
explaining the earning gap in China, the price effect is more important than the population
effect. The labor choice effect is also significant. We conclude that increasing educational
expenditure with no complementary measures such as reforming the education system and
establishing a competitive labor market helps less in reducing income inequality.