Labor Market Emergence and Returns to Education in Rural China∗

L markets are the conduits through which labor moves from rural to urban areas, a shift in population that will drive China’s development. Although the focus of considerable research, scholars do not agree on how well labor markets have been functioning during the past two decades (Cai, Wang, and Du). Some researchers believe that significant barriers still exist in China’s economy, and that the absence of well-functioning rural labor markets has hindered growth (e.g., Benjamin and Brandt). Others (e.g., Meng) show that labor markets do not reward human capital, instead non-market factors are used in assigning jobs and wages. Indeed, de Brauw summarizes the literature on China’s rural labor markets, showing that almost all estimated rates of return are abnormally low. In contrast, others believe that healthy rural labor markets have emerged and are continuing to evolve positively (e.g., Cook; Knight and Song). Most relevant to this paper (although the work is on urban labor