Informality, Returns to Education and Labour Market Integration in China-The Indian Journal of Labour Economics

This study analyses data from household surveys in six large Chinese cities in 2010 to describe the nature of informal employment and estimate the returns to education in the formal and informal labour markets. It is estimated that 25.4 per cent of the urban workers are informally employed and 22.2 per cent of them work in the informal sector. Wage equations for informal and formal workers are also estimated by using OLS, Heckman selection correction models, switching regression models, and quantile regressions. The results show that the returns to education are lower for those working informally as compared to formal workers, and that the gap in returns is even larger for those working in the informal and formal sectors (4.2 per cent versus 11.1 per cent per year of schooling according to a switching regression model). The quantile regression results reveal that the returns to education increase at higher quintiles for informal employment but not for formal employment. The results suggest that the formal and informal sectors are characterised by labour market segmentation.

This article is part of a special issue on informal employment in China and India with special editors, Jeemol Unni and Alakh N. Sharma.