The private rates of return to education in Pakistan
Loading...
Date
2010
Authors
Farooq, Mohammad
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
The development of human capital especially through education and schooling is
regarded as the main factor promoting the over all development of nations. The
human factor is generally believed to be both an input in the production process as
well as the beneficiary of production. It is theoretically and empirically proven that
certain level of education and schooling is crucial for the development and progress
of any nation or country. Therefore, this study has attempted to see the impact of
various levels of education on earnings of the labor force in Pakistan using the 2004-
05 survey data to reaffirm the importance of human capital theory.
This study used the Mincerian Model (1974) to study the impacts of education on the
monthly earnings of the labor force. The other explanatory variables included were:
work experience, different categories of occupations, various industrial groups,
organizations or institutions where the worker is employed, provinces, and regions
(rural/urban).
The recent Pakistan Social and Living Standard Measurement (PSLM) Survey 2004-
05 provided the necessary data, which was used for this research. The results
obtained using the Mincerian method shows that both schooling and experience have
a positive influence on monthly earnings of the labor force. The coefficient of
schooling indicate that an additional year of schooling raises the earnings of a worker
by 5.54 percent, while the coefficient of experience shows an increase of 8.11
percent by an additional year of experience in labor market.
Separate estimations were made for male and female labor force using the fully
extended Mincerian model (equation 4.5). The results showed that primary schooling
raises the earnings of the male worker by 3.04 percent while that of female worker
by 2.12 percent. The returns for middle education level, matric, intermediate
education level, bachelor, masters, M.Phil and doctoral are: 2.63, 7.40, 6.0, 10.30,
9.40, 4.10 and 2.73 percent respectively for male workers. A similar pattern was
observed for female workers. However, the rates of return were higher than males
especially for intermediate education level, bachelor, and masters.
The degree in medicine (MBBS) raises the monthly income of females by 28.20
percent as compared to 8.30 percent for the male workers showing a greater prospect
for females to join this profession. Generally, workers working in the urban areas
earn more than workers in rural areas, according to the study.
The estimated returns to education in this study for Pakistan are lower when
compared with other countries. Contrary to the world-wide pattern of the rates of
return to education studies where returns are higher for primary education, returns to
primary and middle standard education in Pakistan are the lowest.
The study also decomposed the earnings differentials between male and female labor
force using the Oaxaca (1973) methodology. Using the male regression results for
discrimination, the average male in Pakistan earns 172 percent of the average
female's monthly earnings. On the other hand, using female regression results, a
male worker with the same characteristics as the female would earn 123 percent of
female's earnings, or female worker would earn Rs.82 compared to Rs.lOO earned by
male worker. This probably indicates discrimination against female workers in the
Pakistani labor market. There is probably a need to review the employment policy of
both the public and private sectors to reduce this gender discrimination.
Inequality in the distribution of earnings was also calculated using the Ginicoefficient.
The results indicate that inequality is higher in males (0.513) as
compared to females (0.454) in Pakistan. The Gini coefficient for rural areas is 0.317
while for urban areas it is 0.362. Due to an inverse relationship between ,education
and earnings inequality, the situation in Pakistan has improved. To improve the
situation further, more emphasis should be given to schooling of females in Pakistan.
Description
Keywords
Education in Pakistan