Increasing heterogeneity in the economic returns to higher education in urban China

•We investigate heterogeneity in the returns to higher education in urban China.•The average rate of returns to higher education rose from 2003 to 2010.•Substantial heterogeneity has been detected between 2003 and 2010.•The heterogeneous returns to higher education across the income distribution are rising.

This study investigates individual heterogeneity in the economic returns to higher education in urban China following large-scale higher education expansion. We draw on data from the urban section of two waves of the Chinese General Social Survey, analyzing a sample of 1022 individuals in total who (1) were aged between 25 and 32; (2) completed high school education; and (3) were currently employed. Individual-level estimates of the distributions of the returns to higher education are obtained using a nonparametric kernel approach. While the average rate of returns to higher education increased for the 2003–2010 period, the extent of heterogeneity in these returns increased as well. Analysis of the heterogeneous returns to higher education across the distribution of income shows that the effects of college education are greatest at the upper end of the income distribution. Moreover, effect heterogeneity across the income distribution increased from 2003 to 2010.