Estimating the earnings returns to exam-measured unobserved ability in China's urban labor market: Evidence for 2002–2013

China's education system uses exams to measure students' ability. How does the labor market reward the ability that raises exam scores? This paper uses proxies to estimate the labor market returns to ‘exam ability’ in China. The estimated returns to one standard deviation of the ‘exam ability’ are 8% in 2002, 12% in 2007, and 7% in 2013 for the urban population with local hukou and high school and above education. The exam ability explains more wage variation than years of schooling or the level of education degree. There is still a significant amount of unexplained wage variation. It is possible that there are more important labor market skills that are not captured by schooling and exam scores.