Earnings Returns to Education in Urban China: A Note on Testing Differences among Groups.

EDUCATION & economics; EDUCATION; HUMAN capital; TRANSITION economies; EMPIRICAL research

This article presents the author's comment on the article "Does the Market Pay Off? Earnings Returns to Education in Urban China," by Yu Xie and Xiaogang Wu. It was published in the June 2003 issue of the journal "American Sociological Review." The finding that earnings returns to education are higher in the market sector than in the state sector of China's transition economy is commonly attributed to the more efficiently operating market mechanisms with respect to the valuation of human capital. However, Wu and Xie challenge the prevailing wisdom that education is necessarily more highly rewarded in the market sector. Basing their conclusion on an empirical analysis of this issue, Wu and Xie instead state that the market does not reward educational investment differentially. Unfortunately, Wu and Xie's conclusion appears premature. Their conclusion is problematic mainly because of a general difficulty in the interpretation of single pairwise tests in the analysis of the differences among three or more groups. The results of such comparisons can be ambiguous if the tests used lack sufficient statistical power.