Does technology progress enhance or diminish the return to education?—a theoretical model and empirical evidence from China

Previous research has documented education returns declining phenomena and attributed it to higher education system expansion and technological advancement, however, the precise linkage between technological progress and educational returns remains underexplored. This paper bridges this gap by developing a novel theoretical model that integrated market equilibrium wage theory and human capital concept, to elucidates the two-sided role of technological progress in educational return determination. Theoretical analysis suggests that tech-progress can either enhance or diminish the returns to education, depending on the alignment of intrinsic technological levels between education system and industries. Based on survey data from Chinese industries and higher vocational diploma holders, this paper provides empirical evidence for the theoretical prediction, which shows an overall inverted U-shaped relationship between tech-progress and educational returns, indicating tech-progress has a positive effect on educational returns in low-tech sectors but a negative effects in high-tech sectors.