This study provides estimates of the returns to schooling in urban China over an extended period
of economic reforms. We find a dramatic increase in the returns to education, from only 4.0 percent
per year of schooling in 1988 to 10.2 percent in 2001. Most of the rise in the returns to education
occurred after 1992 and reflected an increase in the wage premium for higher education. The rise
is observed within groups defined by sex, work experience, region, and ownership, and is robust to
the inclusion of different control variables. The timing and pattern of changing schooling returns
suggest that they were influenced strongly by institutional reforms in the labor market that increased
the demand for skilled labor.