Research On The Impact Of Financial Development On The Rate Of Return To Education And Income Gap

In 2011,young labor-force fled the big cities including Beijing,Shanghai and Guangzhou.However,surprisingly,with the aftermath not yet exhausted,young labor-force are streaming back.The unique defects of big cities,such as the high cost of living,work pressure and so on,will not undermine their true charm.That the developed region with high degree of financial development tends to attract higher education talent,is in line with the current situation of China's labor flow structure.Based on this situation,this paper puts forward a reasonable conjecture: the developed areas with high degree of financial development provides a higher return on education.However,whether this conjecture is reasonable,is what this article is going to discuss.Using the micro survey data(CGSS2013)and the macro data of financial development,the paper studies the impact of financial development on the rate of return to education in China,and then examines the impact of financial development on the income gap between different education levels.Based on the Mincer equation,the paper does some improvement.Firstly,using the classical OLS regression,the thesis studies the impact of financial development on the rate of return to education.Then,in order to ensure the robustness of the results,this paper makes a robust test: One way is to use proxy variables of education;And the other way is to use the Heckman model to solve the potential sample selection problem;And finally,we also divide samples into urban and rural to examine the urban-rural robustness.Finally,this paper uses Cotton decomposition to empirically study the influence of financial development on the income gap among different education levels.The empirical results of this research is very significant,which confirms our conjecture.We obtain the following conclusions through theoretical and empirical research:firstly,the region with high financial development degree relatively needs more high skilled labor,so the regional financial development promotes the improvement of the rate of return to education.Secondly,the area with higher degree of financial development accordingly has a higher skill premium,which lead to the expansion of the income gap among different education levels.The empirical outcomes indicate that financial development can promote the return of education,but will also lead to the further expansion of the income gap between high and low education groups.This conclusions tell us that,we should not only see the importance of the development of the financial industry,but also be cautious of the fact that financial development may lead to the further expansion of income inequality.The conclusions of this paper provide a reasonable explanation for the phenomenon that the area with higher degree of financial development tends to attract higher education talent,and contribute new ideas for further understanding of the structural differences of labor transfer.Hope that the research conclusions and policy suggestions can be used as reference for the formulation of relevant policies in China.