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Market Returns to Education in Pakistan, Corrected for Endogeneity Bias

Sajjad Haider Bhatti (), Muhammad Aslam () and Jean Bourdon ()
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Sajjad Haider Bhatti: Department of Statistics, Government College University, Faisalabad, Pakistan.
Muhammad Aslam: Department of Statistics, Bahauddin Zakariya University, Multan, Pakistan.

Lahore Journal of Economics, 2018, vol. 23, issue 1, 79-96

Abstract: This paper estimates the Mincer wage model for Pakistan’s labor market, using a relatively recent dataset and new independent variables. We employ instrumental variables and two-stage least squares to address the problem of the endogeneity of education. Our results show that the returns to education are biased downward due to endogeneity, with significant wage gaps emerging among different regions, between genders and between urban and rural job markets. The study’s choice of instruments has conceptual as well as empirical grounds. Our findings establish that the wage determination process is different for males and females across provincial labor markets.

Keywords: Endogeneity of education; human capital model; instrumental variables; Mincer regression; labor market; returns to schooling; Pakistan. (search for similar items in EconPapers)
JEL-codes: C26 (search for similar items in EconPapers)
Date: 2018
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