Higher Education Expansion in China, 1999–2003: Impact on Graduate Employability

• Published date: 01 March 2022
• Author: Dongshu Ou,Zhong Zhao
• Date: 01 March 2022
• DOI: http://doi.org/10.1111/cwe.12412

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 117–141, Vol. 30, No. 2, 2022 117

Higher Education Expansion in China, 1999–2003:

Impact on Graduate Employability

Dongshu Ou, Zhong Zhao*

Abstract

We examine the impact of China’s higher education expansion on labor market outcomes

for young college graduates using China’s 2005 1 Percent Population Sample Survey.

Exploiting variations in the expansion of university places across provinces and high

school cohorts between 1999 and 2003, we apply a difference-in-differences model

and take into account the demand-side effect by using the Bartik index. We fi nd that the

expansion of higher education in China decreased unemployment rates among males

and college graduates in the short term. However, the policy decreased women’s labor

force participation and individual earnings in high-skilled white-collar jobs. We further

discuss potential channels affecting the outcomes that were observed. Our results

illustrate the broad economic benefi ts of higher education. The fi ndings shed new light

on the contribution of young skilled labor in the economic growth of China and call

for policies that can alleviate the short-term negative impact of higher education on

individual students and maximize human capital. Our study also provides an interesting

example of the consequences of the unequal expansion of higher education opportunities

on the labor market of an emerging economy.

Keywords: difference-in-differences, higher education expansion, labor force participation,

unemployment, wage

JEL codes: I23, I28, J31, O15

I. Introduction

The consequences of higher education expansion extend beyond straightforward

economic gain (Hannum and Buchmann, 2005; Machin and McNally, 2007). China

*Dongshu Ou (corresponding author), Associate Professor, Department of Educational Administration and Policy,

The Chinese University of Hong Kong, China. Email: dongshu@cuhk.edu.hk; Zhong Zhao, Professor, School of

Labor and Human Resources, Renmin University of China, China, and Institute of Labor Economics (IZA), Bonn,

Germany. Email: mr.zhong.zhao@gmail.com. The authors thank the editor, anonymous reviewers, Suqin Ge,

Ayako Kondo, Scott Rozelle, and audiences at the 2015 Population Association of America Annual Meeting, the

7th International Symposium on Human Capital and Labor Markets, Faculty Seminar at the Faculty of International

Social Sciences at Yokohama University and the 2018 Conference on Student Development and Employment in

Higher Education at Peking University. Ou acknowledges the fi nancial support from the Chinese University of

Hong Kong (Direct Grant No. 4058038), and the Hong Kong General Research Council (No. 14603416).

Dongshu Ou, Zhong Zhao / 117–141, Vol. 30, No. 2, 2022

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

118

began increasing university enrollment places in 1999, investing in education to fuel

future development, increase domestic consumption and relieve employment pressure

on the labor market after the 1998 Asian fi nancial crisis (Wu and Zhang, 2010). China’s

higher education expansion policy has effectively increased tertiary education rates

in the 21st century (Liu, 2007), driving up the gross enrollment rate from 9.8 percent

in 1998 to 22 percent in 2006. The gross enrollment rate reached 54.4 percent in

2020 according to the Statistical Bulletin of National Education Development in

2020 (Ministry of Education of the People’s Republic of China, 2021).

Research has shown that increasing the share of highly educated workers may result

in improved employment rates and higher earnings among the newly educated (Machin

and McNally, 2007). Using the 2014 China Labor Force Dynamics Survey, Hao and

Zhang (2020) found that the 1999 college expansion did not affect job acquisition

among graduates from 4-year colleges but only incurred a delay in obtaining skilled

jobs for technical college graduates. Kong and his colleagues (Kong et al., 2020) gauged

the impact of higher education expansion on corporate innovation and found that the

college expansion shock provided more educated young labor to young fi rms. They also

concluded that the higher education expansion increased fi rms’ innovative human capital

by enhancing the pool of educated employees and inventors.

However, many other studies on China’s higher education expansion have identifi ed

negative impacts on labor market outcomes for college graduates.1 For example,

Wu and Zhao (2010) used data from the 2000 and 2005 population surveys and applied

a difference-in-differences (DID) model to compare the labor force participation rate,

unemployment rate, and hourly wages for cohorts before and after the expansion policy.

They further applied a difference-in-differences-in-differences (DDD) model to compare

outcomes for students who completed college and high school before and after the

policy. Their fi ndings suggested that higher education expansion in China reduced the

labor force participation rate and the wage rate and increased the unemployment rate

for college graduates. Similar to Wu and Zhao (2010), Li et al. (2014) used the 2000

population survey and data from the 2005 mini-census to compare the unemployment

rate of college graduates in cohorts born before and after the 1999 reform. They found

1Much literature on China’s higher education expansion has been reviewed previously (Ou and Hou, 2019).

However, most of the existing studies are correlational studies that did not reveal the causal impact of higher

education expansion policy on various outcomes including labor market outcomes (Wu and Zhao, 2010;

Li et al., 2014; Yu, 2014). There is also literature focusing on the effects of overeducation as a consequence

of the mass expansion of higher education in the US, UK, and China (Dolton and Vignoles, 2000; Yang and

Mayston, 2012) and these studies indicate that overeducation for specifi c job requirements resulted in negative

wage effects.