Private Returns to Education in Pakistan: A Statistical Investigation

The paper statistically evaluates the trends in private returns to education in Pakistan for the period 1990-91 to 2012-13. The data of 16 nationally representative Labor Force Surveys during this period are utilized to estimate the standard Mincerian Earning Functions with some modifications. Trends are also disaggregated for gender, region, province, sectors and educational attainments. In addition, the study also employs the pseudo-panel approach for the first time in Pakistan for estimating overall returns to education to control unobserved individual heterogeneity which is common to estimate returns from data on individuals. The estimate using the traditional approach with individual LFS cross-section data suggests 5.5 percent yearly returns for wage earners after controlling for the heterogeneity in the regional and provincial labor markets in Pakistan. Nonetheless, the study found considerably larger returns to education from the pseudo-panels with year fixed effects. The estimates of earning equation with birth specific cohort data reveal about 9.2 percent returns for overall Pakistani labor market