The Public Sector Premium in Returns to Education and the Allocation of Human Capital in China

This study examines the education return premium in China’s public sector and its role in driving labor allocation. Using China General Social Survey (CGSS) data from 2003 to 2021, we employ propensity score matching (PSM) and Oaxaca-Blinder (OB) decomposition to address selection bias. Results show a significant education return premium (Δβ = .5014) in the public sector despite an overall income discount (ATT = −0.324). Heterogeneity analysis reveals stronger premiums in SOEs versus core public sectors (government/institutions). Macro-temporal analysis confirms a positive correlation between education premium and public employment share. Robustness checks, including Rosenbaum bounds, CIA tests, and placebo tests (fake sector), support the findings. Policy implications suggest optimizing public sector compensation to leverage education premiums and enhancing private sector benefits to attract talent.