Three essays on the labor market in China

This dissertation consists of three chapters studying the impact of different policies in China on its labor market. In particular, we consider the impact of the Cultural Revolution on intergenerational mobility, the impact of college expansion on earnings and unemployment, and the impact of college expansion on migration. In the first chapter, we study the impacts of the Cultural Revolution on intergenerational and multi-generational educational mobility in China. We use a difference-in-difference method to show that the Cultural Revolution (CR) significantly reduced the advantage of having a more-educated father on a child's educational attainment. The impact of the CR on intergenerational mobility is identified by an index that measures for each individual the number of school years during which the CR restricted education access. The decline of the effect of father's educational level on children's college degree attainment is mediated through the likelihood of obtaining a high school degree, participating in the college entrance examination, and obtaining higher exam scores for those who take the exam. However, the Cultural Revolution did not fully eliminate the advantage of having a more-educated father on a child's educational achievement, nor did it reduce the effect of grandfather's schooling on a grandchild's educational achievement. In the second chapter, we study the short-term response of the labor market to an unprecedented expansion in the Chinese higher education system from 1999 to 2012 on labor market outcomes for young and older college graduates and non-college graduates. Using the number of provincial college admissions as a measure of college expansion, we identify the impacts of the college expansion on the college premium, unemployment, and skills used in first jobs. In the short run, the college expansion decreased the college premium and increased the likelihood of unemployment for new college graduates. Also, the college expansion reduced the cognitive skills used in college graduates' first jobs. The negative impact of the college expansion on labor outcomes is smaller for older college graduates. Our results are consistent with findings published in the 1970s focusing on the effects of the U.S college expansion. In the third chapter, we study the impact of aggregate college admissions on inter-provincial migration in China for different age groups. Examining migration propensity, we find that the college expansion has a direct "enrollment effect" and a "competition effect" on the likelihood of inter-provincial migration. College-bound students are more likely to migrate at ages 17-20 as college admissions in outside provinces increase; and college graduates are more likely to migrate after graduation as the number of local new college graduates increases. In addition, we identify a negative impact of local college admissions on migration at ages 17-20, reflecting the improvement in local educational and labor market opportunities. We also use a conditional Logit model to consider the choice of migration destination and identify how inter-regional differences in college growth affect the patterns of migration. These three chapters provide multiple policy implications as well as evidence for labor economic theories and hypotheses as they relate to China's labor market.

Risk, the College Premium, and Aggregate Human Capital Investment

Despite increases in the college earnings premium to persistently high levels, investment in college education remains low. We can understand this apparent puzzle by considering the risk of attending college and, in particular, the possibility of failing to graduate. Students with a reasonable probability of completing college already enroll, and for those who do not enroll, the low chance of completion blunts the impact of the rising college premium. In the absence of improved college readiness, our quantitative results suggest that continuing long-standing trends in skill-biased technological change can be expected primarily to increase earnings inequality rather than college attainment. (JEL E24, I22, I23, J24, J31, O33)

Changes in Relative Ability as a Determinant of the U.S. College Premium

We develop a macroeconomic framework to estimate the importance of fluctuations in relative ability in accounting for trends in the college premium in the United States since 1965. The theoretical scaffolding is a heterogeneous agent model with two dimensions of ability and endogenous schooling choice, with exogenous skill-biased technological change (SBTC), college tuition, and noneconomic social forces. We solve for conditions under which SBTC reduces the relative ability of college educated workers, and show that these conditions are met in the data. We attribute the drop in the college premium over the 1970s to a 25.5% drop in the mean relative quality of college-educated workers from 1968 to 1977. We find that SBTC explains about two thirds of the increase in college attendance since 1965, and that absent both supply shifts and a supply response to SBTC, the relative wage of highly educated workers would have been 77.1% larger in 2013.

The Price of Experience

We identify a key role of factor supply, driven by demographic changes, in shaping several empirical regularities that are a focus of active research in macro and labor economics. In particular, demographic changes alone can account for the large movements of the return to experience over the last four decades, for the differential dynamics of the age premium across education groups emphasized by Katz and Murphy (1992), for the differential dynamics of the college premium across age groups emphasized by Card and Lemieux (2001), and for the changes in cross-sectional and cohort-based life-cycle profiles emphasized by Kambourov and Manovskii (2005). (JEL D91, E24, I23, J11, J24, J31)