The Accumulation of Human Capital Over Time and its Impact on Salary Growth in China

Abstract

This study compares the growth in salaries across three spatial regions in China during the period 1993-1998, when economic reforms were implemented nationwide. Our study compares the impact of three forms of education and training on salary growth, namely pre-job formal schooling, on-the-job-training provided by employers, and adult education paid for by the employees themselves. We used a three-level hierarchical linear model to partition variance among individual, firm, and regional characteristics. The data were drawn from a 1998 survey of 16 485 employees from 365 firms in six provinces (two provinces in the eastern part of the country, two in the central part, and two in the western part). We found that: (1) regional disparities have a paramount impact on differences in salary; (2) individual characteristics defined by firm as well as firm characteristics are significantly related to salary decisions; (3) returns to formal schooling increase significantly in more market-based regions; and (4) employees also benefit by receiving on-the-job-training and by participating in adult education programs outside their firm.