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Wage Differentials, Rate of Return to Education, and Occupational Wage Share in the Labour Market of Pakistan

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  • Asma Hyder

    (Pakistan Institute of Development Economics, Islamabad)

Abstract

This paper examines the magnitude of public/private wage differentials in Pakistan using data drawn from the 2001-02 Labour Force Survey. Pakistan Labour Force Survey is a nationwide survey containing micro data from all over the country containing demographic and employment information. As in many other countries, public sector workers in Pakistan tend to have higher average pay and educational levels as compared to their private sector counterparts. First, this paper presents the inter-sectoral earning equations for the three main sectors of the economy, i.e., public, private, and state-owned enterprises. These results are further decomposed into “treatment” and “endowment effect”. To examine the role of human capital in wage gap, the rate of return to different levels of schooling is calculated. These rates of return to education may be important for policy formulation. The relative earning share is also worked out to look into the distribution of wages across the occupational categories. The earning equations are estimated with and without correction for selectivity, which is also the main objective of the study, i.e., to find out if any non-random selection is taking place within these three sectors of employment

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File URL: http://www.pide.org.pk/pdf/Working%20Paper/Working%20Paper-17.pdf
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Bibliographic Info

Paper provided by Pakistan Institute of Development Economics in its series PIDE-Working Papers with number 2007:17.

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Length: 20 pages.
Date of creation: 2007
Date of revision:
Handle: RePEc:pid:wpaper:2007:17

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Keywords: Wage Differentials; Rate of Return to Education; Public Sector Labour Markets;

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References

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  1. Rebecca M. Blank, 1994. "Social Protection versus Economic Flexibility: Is There a Trade-Off?," NBER Books, National Bureau of Economic Research, Inc, number blan94-1, October.
  2. Terrell, Katherine, 1993. "Public-private wage differentials in Haiti Do public servants earn a rent?," Journal of Development Economics, Elsevier, vol. 42(2), pages 293-314, December.
  3. van der Gaag, Jacques & Vijverberg, Wim, 1988. "A Switching Regression Model for Wage Determinants in the Public and Private Sectors of a Developing Country," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 244-52, May.
  4. Mengistae, Taye, 1999. "Wage rates and job queues - does the public sector overpay in Ethiopia?," Policy Research Working Paper Series 2105, The World Bank.
  5. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521608275.
  6. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  7. Gindling, T H, 1991. "Labor Market Segmentation and the Determination of Wages in the Public, Private-Formal, and Informal Sectors in San Jose, Costa Rica," Economic Development and Cultural Change, University of Chicago Press, vol. 39(3), pages 584-605, April.
  8. Rebecca M. Blank, 1993. "Public Sector Growth and Labor Market Flexibility: The United States vs. The United Kingdom," NBER Working Papers 4339, National Bureau of Economic Research, Inc.
  9. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  10. Asma Hyder & Barry Reilly, 2005. "The Public and Private Sector Pay Gap in Pakistan: A Quantile Regression Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(3), pages 271-306.
  11. Psacharopoulos, George, 1994. "Returns to investment in education: A global update," World Development, Elsevier, vol. 22(9), pages 1325-1343, September.
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Cited by:
  1. Aslam, Monazza & Kingdon, Geeta, 2009. "Public-private sector segmentation in the Pakistani labour market," Journal of Asian Economics, Elsevier, vol. 20(1), pages 34-49, January.
  2. Abdul Qayyum & Idrees Khawaja & Asma Hyder, 2008. "Growth Diagnostics in Pakistan," PIDE-Working Papers 2008:47, Pakistan Institute of Development Economics.
  3. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth: The Role of Domestic Financial Sector," PIDE-Working Papers 2007:18, Pakistan Institute of Development Economics.
  4. Harry Patrinos & Cristobal Ridao-Cano & Chris Sakellariou, 2009. "A note on schooling and wage inequality in the public and private sector," Empirical Economics, Springer, vol. 37(2), pages 383-392, October.

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