The impact of education on income inequality between ethnic minorities and Han in China

•We analyze income inequality and the impact of education on income inequality between ethnic minorities and Han in China.•The endogeneity of education is controlled for by using institutional changes in income equations•The results indicate significant income inequality to the disadvantage of ethnic minorities in China•We find specific returns to education for ethnic minorities for the full sample, the female, urban and rural subsamples.•We have no convincing results for the male subsample due to weak instruments.

This article analyzes the impact of education on income inequality between ethnic minorities and Han in China by using the data from the China Health and Nutrition Survey (CHNS) over the period 1993-2011. An instrumental variable approach using two institutional changes is applied to address the endogeneity of education in income equations for various subsamples. To investigate the impact of education on income inequality between ethnic minorities and Han, we introduce an interaction term between the ethnic minority status and years of education. Our results suggest that there exists significant income inequality to the disadvantage of ethnic minorities for the full, female, and urban samples, and depending on the instrument also for the rural sample. Nevertheless, our results for these samples show specific returns to education for ethnic minorities, which implies that a portion of the income gap can be overcome with additional education. We find that in general one additional year of education will increase earned incomes of ethnic minorities by 26.3-28% and in particular by 13.5-14.4% for women from an ethnic minority group, by 10.4-14% for ethnic minorities with urban household registration, and by 10.8% for ethnic minorities with rural household registration. However, we cannot obtain conclusive results for the male sample due to weak instruments.