Do Occupational Regulations Increase Earnings? Evidence from China

• Published date: 01 April 2017
• Author: Xiaoye Qian,Wei Chi,Morris M. Kleiner
• Date: 01 April 2017
• DOI: http://doi.org/10.1111/irel.12176

Do Occupational Regulations Increase Earnings?

Evidence from China

*

WEI CHI, MORRIS M. KLEINER, and XIAOYE QIAN

We examine the influence of occupational certification and licensing in China. In

the empirical analysis, we find that licensing is associated with an average of 15 per-

cent higher wages and certification with a 13–14 percent higher wage based on ordi-

nary least squares estimates. However, using propensity score and instrumental

variable estimates suggests that part of the positive effect of certification on wages

is due to self-selection. In addition, the characteristics of a certificate or license, such

as the type and quantity, further influence wage determination in China.

Introduction

As do most countries, China has occupational regulations that include certi-

fication and licensing. For some occupations, the government requires workers

to have a license to work for pay, and the license is evidence that an individ-

ual has attained certain occupational skills. For other occupations, the license

is not required to work, but the government provides occupational certification

or a right to title to signal various skill levels of workers.

1

Efforts to become

certified or licensed throughout China have greatly increased in recent years.

*The authors’affiliations are, respectively, Tsinghua University, Beijing, China. E-mail: chiw@sem.

tsinghua.edu.cn; Humphrey School of Public Affairs, University of Minnesota, Federal Reserve Bank of Min-

neapolis, Minnesota, Upjohn Institute for Employment Research and NBER. E-mail: kleiner@umn.edu; and

Sichuan University, Chengdu, China. E-mail: xyqian@scu.edu.cn. Future correspondence can be addressed to

Xiaoye Qian. The authors thank Hwikwon Ham for his comments and suggestions on the paper. Wei Chi

acknowledges support from the National Natural Science Foundation of China (Grant No. 71421061,

71121001). Xiaoye Qian acknowledges support from the National Natural Science Foundation of China (Grant

No. 71402108) and from the MOE (Ministry of Education in China) Project of Humanities and Social Sciences

(Project No. 14YJC630103).

JEL: J3, J44.

1

In China there is no clear distinction between vocational qualification and certification. The two names

seem to refer to one system. A study conducted jointly by U.K. Department of International Development

(DFID) and World Bank, “China’s Vocational Qualifications and Certification System,”used both names to

describe China’s system (available at: http://siteresources.worldbank.org/EDUCATION/Resources/278200-

1126210664195/1636971-1126210694253/Vocation_Qualification.pdf). Once a worker obtains a certificate,

it may not be revoked. In this aspect, China’s vocational qualification and certification system is more simi-

lar to the vocational qualification system in the United Kingdom.

INDUSTRIAL RELATIONS, Vol. 56, No. 2 (April 2017). ©2017 Regents of the University of California

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Employees and college students have been putting considerable effort toward

taking various examinations in order to obtain occupational certificates and

licenses. For example, in 2003, 0.9 million people applied for the certified

public accountant (CPA) licensing examination in China. In 2007 and 2010,

this number increased to 1.06 million and 1.3 million, respectively.

2

By 2012

the number of individuals who took this licensing examination in China had

increased to 1.8 million; this represents a 13.6 percent increase in the number

of examinees from 2011 (China Accounting.net, 2012). The Ministry of

Human Resources and Social Security (MHRSS) agency estimates that in

2007 alone, close to 10 million people obtained at least one occupational

certificate (China Youth Daily, 2008).

Beyond the efforts to obtain certification is the view that occupational cer-

tificates are becoming more important in employment, wage determination,

and promotion decisions. A survey of job seekers suggests that 52 percent

think that under the same conditions, job candidates with more certificates

have an advantage in the labor market (China Youth Daily, 2008). Some firms

also reward employees for obtaining additional occupational certificates; given

the same job, an employee’s base salary will increase by $80–$160 per month

for certain types of certificates (XinHua Net, 2011). Moreover, according to a

2006 news report, the annual salary of technicians with an advanced occupa-

tional certificate was more than $13,000 higher than the starting salary of

uncertified Ph.Ds and the demand for certified technicians continued to be

strong over the next 5 years (Sina.com, 2006). The bonus and higher wages

that employers are willing to pay for certain types and levels of certificates

suggest that strong demand has also led to increasing certification and

licensing.

To provide more evidence on the prevalence of occupational regulations in

China’s labor market, we obtained data from China Statistical Yearbooks for

various years. During the period 1996–2012, the number of certification or

licensing exam-takers increased from 2.7 million to 18.3 million, and the num-

ber of workers who were issued a certificate or license increased from 2.2 mil-

lion to 15.5 million each year. The direct reason for such a rapid increase in

the number of exam-takers and license-holders is the increase in occupational

coverage of licensing and certifications. The licensing of physicians, lawyers,

and architects was developed only in recent years. Physicians began to be

licensed in 1998, lawyers in 1996, and architects in 1995. Nurses were first

licensed in 2008. This is much more recent than in the United States, which

2

Data Source: China Accounting Yearbook, 2003–2010.

352 / WEI CHI,MORRIS M. KLEINER AND XIAOYE QIAN