Labor Market Experience and Returns to College Education in Fast-Growing Economies
Abstract
Abstract China’s college admissions increased fivefold between 1998 and 2009. While the college premium for young workers declined, that for senior workers increased in this period. In our general equilibrium model, a rising demand for skills (education and experience) explains both trends. A demand shock leads to an expansion in the elastic college enrollment, depressing the college premium for young workers. With an inelastic supply, experienced college graduates continue to enjoy a rising premium. Despite the low immediate premium, young individuals continue to flood into colleges because they foresee high lifetime returns. The lifetime college premium differs significantly from the cross-sectional premium estimated by the Mincer equation. Simulations match empirical results well.