Though Mandarin is China's common language, each region/city has its own dialect. Using a unique self-collected dataset, this paper estimates returns to dialect familiarity in China's largest and most developed city, Shanghai. We evaluate migrant workers' comprehension and fluency of the Shanghai dialect, and instrument their dialect fluency by determining whether the workers' hometowns were located in the Wu dialect region and the distance between those hometowns and Shanghai. We determined that in OLS regressions, the returns to dialect are a consequence of endogeneity bias. After using IV (instrumental variable), dialect fluency was shown to significantly impact one's income in the service industry, in particular affecting sales jobs. In manufacturing and construction jobs, migrants with higher dialect fluency tended to be self-employed in order to earn more income. By distinguishing between listening and speaking abilities, we found that auditory comprehension does not significantly increase one's earning, while oral fluency does. Since local residents in Shanghai can understandMandarin, migrants who can understand Shanghainese won't have difficulty in the information exchange. Therefore, our results confirm that dialect is a channel through which people expose their identity. Speaking the local dialect is a way for migrant workers to integrate into the local society and also to reduce transaction costs in the labor market.
