Higher Education Expansion and College Earnings Premium: A Comparative Study of Two Systems in One Country

Higher Education in both Mainland China and Hong Kong Special Administrative Region experienced two waves of rapid expansion since 1980s. In Mainland China, the first wave of expansion was introduced in 1993, and the gross enrolment ratio of higher education doubled from 1992 to 1998. From the beginning of 1999, an unprecedented college expansion started, resulting in the enrolment ratio increased from less than 6 percent in 1998 to over 50 percent in 2017. In Hong Kong, the enrolment ratio has one-fold increase from 1989 to 1995. The second wave of the dramatic increase took place since 2000, when a policy was launched to raise the participation rate in higher education from 33 percent to 60 percent within ten years. The two waves of expansion in two systems in China provides an excellent case to examine the impact of rapid college expansion in two different economic systems under the same country on the earnings premium for higher education graduates. Drawing on the nationwide surveys of Mainland China and the 5% census data of Hong Kong, this study adopts the Difference in Differences (DiD) method to compare the earnings premium of higher education degree holders (versus upper secondary graduates) before and after the two waves of college expansion. While the general public believes that the crowding effect is the culprit, the results support the view that the declining quality of university graduates is the prime candidate for the shrinking earnings premium during the second wave of expansion in both systems.