Since the industrial revolution, human capital has played an increasingly important role in economic development and social change. However, the relationship between human capital and the wage premium remains uncertain due to the difficulty in distinguishing the skill effect and the signaling effect of education. The prolonged coexistence of traditional Chinese education and Western-style education in the modern period provides a historical basis for the in-depth discussion on the heterogeneity of labor markets. Based on the micro-data from the staff file of Shanghai Commercial Savings Bank in the 1930s, this paper examines the impact of modern education on bank employees’ wages and its mechanisms.

The empirical results show that: （1）Most levels of modern education have a significant wage premium over traditional education, and people with higher levels of education tend to earn higher income levels. After taking into account factors such as work location, senior hometown relations and heterogeneity in individual abilities, the above conclusions remain robust.（2）The wage premium of modern education comes primarily from the improvement of work skills, rather than from a signaling effect.（3）Since more educated employees have both higher working capacity and a greater ability to adapt to new jobs, the accumulation of human capital comes on the one hand from the improvement of work skills promoted by education, and on the other hand from the accumulation of actual work experience, thereby achieving a higher wage premium.

The main contributions of this paper are as follows: （1）It distinguishes the skill effect and the signaling effect of education, suggesting that the wage premium comes mainly from the accumulation of education and human capital, rather than from the heterogeneity of individual workers’ capabilities.（2）It provides an empirical case study of wage returns to education in modern societies, expanding and enriching the micro-mechanism of the role of Western-style education in modern economic development, and providing a micro-perspective for understanding the role of human capital in the economic transformation and development of modern China.

Based on the research findings, this paper proposes the following policy recommendations: Firstly, great importance should be attached to basic education at all levels, and the comprehensive capacity of human capital should be developed through general education. Secondly, vocational education and training should be continuously strengthened, so that workers can adapt to work in more sectors and accumulate skills through “learning by doing”. Thirdly, we should focus on both developing human resources and promoting the mobility of human resources between regions and sectors, increase the accumulation of laborers’ work experience, and eliminate policies that may impede the mobilization and circulation of human resources.