Mincerian Earnings Function for Pakistan

Due to its central role in various debates about the determinants of individual earnings, the Mincerian earnings function (MEF) as given in Mincer (1974) has attracted the attention of many economists. The MEF has been estimated virtually for every country except Pakistan, where a necessary condition has been missing, i.e., national level data on the exact number of years of schooling completed has not been available; instead, in a majority of the relevant micro-level surveys, schooling has been measured only in terms of a 'categorical' variable with possible values being 'Primary and Incomplete Middle', 'Middle and Incomplete Matric', etc. At best, this data deficiency has restricted the existing estimated earnings functions to what we refer to as the 'Dummies earnings functions' (DEF) since they are constrained to specify schooling in terms of a set of dichotomous dummy variables. Using a nationally representative data on male earners, this study tries to fill the above gap by estimating the MEF both in its 'strict' as well as the 'extended' forms. In terms of the 'strict' MEF, i.e., the one analogous to Mincer's (1974) specification which essentially treats earnings as a function of schooling and job-market experience, the main findings are mat the marginal rate of return to schooling is 8 percent, the experience-earnings profile is consistent with the pattern suggested by the human capital theory and as much as 41 percent of the variance in log earnings is accounted for by the strictly defined MEF. By and large, these findings are consistent with those implied by estimated MEFs for comparable LDCs. Further, the present study also estimates 'extended' MEF, whose specification supplements that of the 'strict' MEF by adding variables to control for urban vs rural background, occupational categories, employment status, and provincial heterogeneity. The 'extended' MEFs are also estimated separately for urban and rural samples and for each province. Formal 'Chow-type F tests' conducted to test for homogeneity of the parameters of MEF across different sub-samples reveal 'pervasive' segmentation across the above strata.