Academic journal article Pakistan Economic and Social Review

An Empirical Analysis of Educational Inequalities in Pakistan

Academic journal article Pakistan Economic and Social Review

An Empirical Analysis of Educational Inequalities in Pakistan

Article excerpt

Byline: MUHAMMAD IDREES AND ANWAR SHAH

Keywords: Education, Inequality, Earnings

I. INTRODUCTION

Human capital is one of the fundamental factors for economic development in a country. Witzke (1984) states that neither land nor physical capital but human capital and other human quality components are key factors for economic development. Schultz (1961) has also emphasized the importance of investment in human capital. A large number of studies has revealed that human capital is one of the most important factors for economic growth [see for example: Pelinescu (2015), Riley, (2012) and Mankiw et.al. (1992)]. We know that education is an essential ingredient for human capital. Hence, sustainable investment in human capital in the form of education is a prerequisite for sustainable economic growth. Pelinescu (2015) emphasizes that targets of high growth cannot be realized without a good education and training system. Education helps in the formation of human capital by making individuals more productive via increasing the potential of their earning.

A large number of studies have shown a positive impact of education on earning. [see for example; Nasir and Nazli (2000), Blundell, et.al. (2004), Devereur, and Fan (2011), Turcinkova and Stavkova (2012) and Heckman, et.al. (2016)]. Likewise, is the situation in Pakistan. The statistics in Table 1 show that on average more educated people earn more. The calculation is based on micro data of Pakistan Social and Living Standards Measurement survey (PSLM) for the year 2015-16.

TABLE 1 Average Earnings and Education in Pakistan

###Education (measured in years)###Average Monthly Earnings in PKR

###0A4###9,957

###5A9###13,474

###10A13###18,708

###14A15###27,178

###16 and above###34,582

In addition, one can observe from Table 1 that the average earning increases with the level of education. For instance, the average earnings of graduates are 3.5 times larger than the average earning of illiterate earners 1 This apparently seems to be a reasonable difference, but if the cost of education including time cost, opportunity cost and monetary cost is considered then the difference between average earnings of illiterates and graduates is not much high. One possible reason could be the earnings due to non-educational factors, such as in Pakistan a significant number of illiterates are small or medium level farmers. Likewise, some of them own established businesses through inheritance. Thus, the earnings of such people, which are much higher, cause an upward shift in the average earnings of illiterates.

The earnings of people with education level of primary (5-9) are about half more than the average earnings of illiterate people. This shows that, on average, every next level of schooling matter in term of productivity.

Education is the fundamental determinant of earning, so difference in education is among the root causes of differences in earnings. Estimates based on micro data of PSLM (2015-16), show that the Gini coefficient of earning inequalities in Pakistan is 0.474, which is too high 2. The statistics presented in Table 1 also indicate that difference in educational attainments is a key source of earning differentials.

In the literature, we find that unequal distribution of education has a negative impact on per capita income. For example, Castello, and Domenech (2002) show that inequality in education is associated with lower investment rate and lower income growth rates. The study suggests that policies for promoting growth must take into account, both the level and distribution of education. Later on Hassan and Shehzad (2007) explore the impact of educational inequality in Pakistan on economic growth. The study finds that educational inequalities hamper economic growth. Yet in another study Demet, (2010) explores the relationship between human capital inequalities and economic growth for the provinces of Turkey and finds that educational inequality is a key factor in explaining variations in output growth. …

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