China's expansion of higher education: The labour market consequences of a supply shock

- We provide a theoretical framework for analysing the market response to a labour supply shock.
- We examine empirically the labour market consequences of the great increase in China's higher education enrolments 1998-2008.
- We explore the effects of that expansion on the quality of higher education.
- There are important cohort effects on wages, unemployment and occupational attainment.

In the decade 1998-2008 China expanded enrolment in higher education almost six-fold. For the examination of its short term labour market consequences, this unprecedentedly huge and sudden policy change might be regarded as a natural experiment. After providing a theoretical framework for analysis, the paper uses urban labour market surveys to analyse how the labour market adjusted to the supply shock. Three outcomes are examined: the effect of the expansion on wages, on unemployment, and on access to 'good jobs'. The shock is found to reduce relative wages, raise the unemployment rate, and reduce the proportion in good jobs, but only for the entry-year or entry-period cohort of graduates. The effect is fairly powerful for entrants, especially university rather than college graduates, but incumbent graduates are largely protected from the supply shock. An attempt is made to examine the labour market effects of the quantitative expansion on educational quality. The paper provides insight into the operation of China's labour market in recent years.