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

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.Wage Differentials, Rate of Return to Education, Public Sector Labour Markets

Wage Differentials, Rate of Return toEducation, and Occupational WageShare in the Labour Market of Pakistan

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

Preference for Public Sector Jobs and Wait Unemployment: A Micro Data Analysis

This paper exploits responses on the stated preferences for public sector jobs among a sample of unemployed in Pakistan to inform on the existence of public sector job queues. The empirical approach allowed job preference to influence unemployment duration. The potential wage advantage an unemployed individual would enjoy in a public sector job was found to exert no independent influence on the stated preference indicating that fringe benefits and work conditions are perhaps more important considerations. The stated preference for a public sector job was found to be associated with higher uncompleted durations. The estimated effect suggests that, on average and controlling for education and other characteristics, those unemployed who stated a preference for public sector jobs had higher uncompleted durations of between four and six months. This finding was taken to confirm that there are long queues for public sector jobs in Pakistan.Wage Differentials, Wage Structure, Unemployment: Models, Duration, Incidence, and Job Search

The Public and Private Sector Pay Gap in Pakistan: A Quantile Regression Analysis

This paper examines the magnitude of public/private wage differentials in Pakistan using data drawn from the 2001-02 Pakistan Labour Force Survey. As in many other countries, public sector workers in Pakistan tend both to have higher average pay and education levels as compared to their private sector counterparts. In addition, the public sector in Pakistan has both a more compressed wage distribution and a smaller gender pay gap than that prevailing in the private sector. Our empirical analysis suggests that about two-fifths of the raw differential in average hourly wages between the two sectors is accounted for by differentials in average characteristics. The estimated public sector mark-up, ceteris paribus, is of the order of 49 percent and is substantial by the standards of developed economies. The quantile regression estimates suggest that the mark-up was found to decline monotonically with movement up the conditional wage distribution. In particular, the premium at the 10th percentile was estimated at 92 percent as compared to a more modest 20 percent at the 90th percentile.

The Public Sector Pay Gap in Pakistan: A Quantile Regression Analysis

This paper examines the magnitude of public/private wage differentials in Pakistan using data drawn from the 2001/02 Labour Force Survey. As in many other countries, public sector workers in Pakistan tend both to have higher average pay and education levels compared to their private sector counterparts. In addition, the public sector in Pakistan has both a more compressed wage distribution and a smaller gender pay gap than that prevailing in the private sector. Our empirical analysis suggests that about two-fifths of the raw differential in average hourly wages between the two sectors is accounted by differentials in average characteristics. The estimated ceteris paribus public sector ‘mark-up’ is of the order of 49% and is substantial by the standards of developed economies. The quantile regression estimates suggest that the ‘mark-up’ was found to decline monotonically with movement up the conditional wage distribution. In particular, the premium at the 10th percentile was estimated at 92% compared to a more modest 20% at the 90th percentile.

Schooling is Associated Not Only with Long-Run Wages, But Also with Wage Risks and Disability Risks: The Pakistani Experience

Many studies document significantly positive associations between schooling attainment and wages in developing countries. But when individuals enter occupations subsequent to completing their schooling, they not only face an expected work-life path of wages, but a number of other occupational characteristics, including wage risks and disability risks, for which there may be compensating wage differentials. This study examines the relations between schooling on one hand and mean wages and these two types of risks on the other hand, based on 77,685 individuals from the wage-earning population as recorded in six Labor Force Surveys of Pakistan. The results suggest that schooling is positively associated with mean total wages and wage rates, but has different associations with these two types of risks: Disability risks decline as schooling increases but wage risks, and even more, wage rate risks increase as schooling increases. The schooling-wage risks relation, but not the schooling-disability risks relation,is consistent with there being compensating differentials.Wages, Risks, Labor Markets, Job Disabilities, Compensating Differentials,Developing Country, Schooling

Sticky Floors and Occupational Segregation: Evidence from Pakistan

The paper uses the micro data from nationwide Pakistan Labour Force Survey 2005-06 to examine the hypothesis of glass ceilings and sticky floors, both in public and private sectors. The study explores the conditional gender wage distributions at different quantiles—a subject that so far has not attracted much attention in Pakistan. The results support that the gender wage differentials monotonically increase as one moves towards the bottom floor of the conditional wage distribution, i.e., the evidence validates the sticky floor hypothesis. The second sub-theme of the paper has been to investigate those factors that encourage occupational segregation in the labour market. For this purpose, an index of occupational segregation has been calculated for each of the occupational group. The value of Duncan’s D (Duncan Gender Occupational Dissimilarity Index) suggests that 40 percent employees (both men and women) have to change their jobs for an identical male and female labour force distributions. As a final result it has been established that the female participation has been very low, particularly in high paid occupational categories like mangers, legislators and senior officials.Food Insecurity, Economics Access, Poverty and Terms of Trade

Growth Diagnostics in Pakistan

Following the Hausmann, et al. (2005) methodology, we attempt to identify the constraints to growth in Pakistan. We argue that governance failure and institutional shortcomings are the heart of the matter: corruption is rampant, judicial independence is low, educational institutions do not furnish the right kind of labour force, legal institutions do not protect the lenders against loan defaults, ambiguous land titles constrain mortgage financing and construction activity, labour market institutions restrict hiring/firing, State Bank of Pakistan (SBP) has not done its duty to contain the rising interest spread, and SECP/stock market has not played its due role in the transfer of funds from savers to investors. We identify three binding constraints to growth in Pakistan. These are (i) poor state of governance, (ii) poor state of institutions, and (iii) lack of competitive environment (that restricts innovation and hence growth). Without improving the state of governance and that of institutions, sustainable growth cannot occur even if other factors, like a reasonable savings rate, are put in place.Economic Growth, Institutions and Growth

Growth Diagnostics in Pakistan

Following the Hausmann, et al. (2005) methodology, we attempt to identify the constraints to growth in Pakistan. We argue that governance failure and institutional shortcomings are the heart of the matter : corruption is rampant, judicial independence is low, educational institutions do not furnish the right kind of labour force, legal institutions do not protect the lenders against loan defaults, ambiguous land titles constrain mortgage financing and construction activity, labour market institutions restrict hiring/firing, State Bank of Pakistan (SBP) has not done its duty to contain the rising interest spread, and SECP/stock market has not played its due role in the transfer of funds from savers to investors. We identify three binding constraints to growth in Pakistan. These are : (i) poor state of governance, (ii) poor state of institutions, and (iii) lack of competitive environment (that restricts innovation and hence growth). Without improving the state of governance and that of institutions, sustainable growth cannot occur even if other factors, like a reasonable savings rate, are put in place.economic growth, Institutions and Growth

Schooling is Associated not only with Long-run Wages, but also with Wage Risks and Disability Risks: The Pakistani Experience.

Many studies document significantly positive associations between schooling attainment and wages in developing countries. But when individuals enter occupations subsequent to completing their schooling, they not only face an expected work-life path of wages, but a number of other occupational characteristics, including wage risks and disability risks, for which there may be compensating wage differentials. This study examines the relations between schooling on one hand and mean wages and these two types of risks on the other hand, based on 77,685 individuals in the labour force as recorded in six Labour Force Surveys of Pakistan. The results suggest that schooling is positively associated with mean total wages and wage rates, but has different associations with these two types of risks: Disability risks decline as schooling increases but wage risks, and even more, wage rate risks increase as schooling increases. The schooling-wage risks relation, but not the schooling-disability risks relation, is consistent with there being compensating differentials. JEL classification: J31, J28, O53 Keywords: Wages, Risks, Labour Markets, Job Disabilities, Compensating Differentials, Developing Country, Schoolin