Mincerian Earnings Function for Pakistan

Due to its central role in various debates about thedetenninants of individual earnings, the Mincerian earnings function(MEF) as given in Mincer (1974) has attracted the attention of manyeconomists. The MEF has been estimated virtually for every countryexcept Pakistan, where a necessary condition has been missing, i.e.,national level data on the exact number of years of schooling completedhas not been available; instead, in a majority of the relevantmicro-level surveys, schooling has been measured only in terms of a'categorical' variable with possible values being 'Primary andIncomplete Middle', 'Middle and Incomplete Matric', etc. At best, thisdata deficiency has restricted the existing estimated earnings functionsto what we refer to as the 'Dummies earnings functions' (DEF) since theyare constrained to specify schooling in terms of a set of dichotomousdummy variables. Using a nationally representative data on male eameG,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 whichessentially treats earnings as a function of schooling and job-marketexperience, the main fmdings are that the marginal rate of return toschooling is 8 percent, the experience- earnings profile is consistentwith the pattern suggested by the human capital theory and as much as 41percent of the variance in log earnings is accounted for by the strictlydefined MEF. By and large, these findings are consistent with thoseimplied by estimated MEFs for comparable LDCs. Further, the presentstudy also estimates 'extended' MEF, whose specification supplementsthat of the 'strict' MEF by adding variables to control for urban vsrural background, occupational categories, employment status, andprovincial heterogeneity. The 'extended' MEFs are also estimatedseparately for urban and rural samples and for each province. Formal'Chow-type F tests' conducted to test for homogeneity of the parametersof MEF across different sub-samples reveal 'pervasive' segmentationacross the above strata.