The Mincer Human Capital Model in Pakistan

Abstract

This article estimates and interprets returns to education for three sub–sectors of the labour market, by gender, in Pakistan, using the most recent data set of the Pakistan Social and Living Standards Measurement (PSLM) Survey, 2004–05. The results show two distinctive features of Pakistani education: the high apparent returns to female education outside agriculture and the remarkable increase of returns with successive levels of education, which are to be explained primarily by two departures from the basic Mincer model—generally poor quality primary schooling and family unwillingness to invest in female education because of a lack of earning opportunities. There is some signalling in Pakistani education investment, but the education is mainly a productivity–enhancing investment in human capital, according to a comparison of self–employed and paid employed earnings equations. Returns to the public spending of education are extremely high, suggesting considerable state underinvestment. The policy challenge is in the low wages and high education in the female paid employment sector, and the low participation rate.