Private returns to education: earnings, health and well-being

This thesis is focused on economic returns to education in China. It takes education as a key point to develop three aspects: earnings returns to education, the influence of education as one of the social-economic factors associated with the Body Mass Index (BMI) related to health, and the determinants of subjective well-being. A panel databased analysis including continuous and discrete dependent variables (ordered probit/probit) is used in this research. The first part examines the earnings returns to education in urban China for four years covering the period 1989 to 2000. We find, in common, with others that such returns were small in 1989, but have increased steadily since then. We also find that the returns for women exceed those for men and go some way to reducing the gender earnings gap. Crucially, however the returns to education decline with the length of time since the individual left school which is consistent with the hypothesis that education enhances ability and skills which in turn enhances earnings, but that the value of such skills deteriorates over time. Finally we find evidence for gravity effects by which earnings decline as distance from Beijing, and more noticeable, Shanghai increases. The aim of the second part is to examine the impact of socio-economic status (SES) on the BMI, a formula based on the ratio of height to weight, linked to health, using a fouryear (1991, 1993, 1997 and 2000) panel data set. To an extent we confirm the results with respect to the linkage between SES and health found for other countries. However, instead of using the existing specification of BMI, we explore the healthy BMI range based on a self-reported measure of health in China. This leads to a slightly different formulation for the BMI and a substantially different healthy range. We also find that this healthy BMI has a significant impact on health together with SES. Because of potential simultaneity between education and health we estimate a relationship between SES and health change. We find a significant relationship between education and changes in health status. The final part studies both happiness and life satisfaction in mainland China. We explore the extent to which SES and social capital influence subjective well-being. The results for happiness and life satisfaction are similar, but not identical. To an extent we confirm the results of others with respect to other countries. Hence we find a U-shaped relationship with respect to age and positive influences of income and health on well-being. We also include a variable which reflects the degree of choice/control over their lives people feel they have. Crucially, for social capital variables, we find that individuals who are involved in more voluntary organizations have higher levels of happiness, and those who are a member of Communist party are also more satisfied with their lives. Finally, education has a limited positive impact on subjective well-being, however, it is also the most significant determinant of social capital variables across individuals. In the thesis we specifically discuss the problem of endogeneity which is traditionally tackled by the use of some instrumental variable method. Recently much of the work in this genre including work relating to education, has been criticised from the perspective of weak instruments. Throughout we suggest alternative approaches and each is specific to the context in which it is used. Each of these alternatives is in itself based on certain assumptions which can in turn be questioned. Their value lies more in that they present extra evidence on the impact of education, rather than they unambiguously provide a solution to the endogeneity problem. Economics is not an exact science and it is the accumulation of evidence which is important. In our case our evidence is that education matters, and it matters not just with respect to earnings, and by implication productivity, but also with respect to health and subjective well-being.