Earnings Inequality and Education: An Empirical Analysis

Abstract

This study provides an empirical analysis for the connection between education and earnings inequality. Using Household Integrated Economic Surveys and Pakistan Social and Living Measurement Surveys for various years, it analyzes how variations in education attainment affect earnings inequality in Pakistan. The study adopted different econometric techniques and reveals that the relationship between variation in education attainment and earnings inequality in positive. Higher variations in education attainment are associated with higher earnings inequality. Other results indicate that proportion of earners with at least 12 years of schooling, proportion of female earners and the roads density used as a development indicator are positively related with earnings inequality whereas, average age of earners and average earnings per earner are negatively associated with earnings inequality. Decomposition analysis helps to rank provinces according to their share in overall inequality. Decomposition analysis strengthens the argument that level of education has a profound effect on earnings because within the group of earners with highest level of education achieved inequalities begin to reduce. Inequalities are lower in the province of Balochistan and are highest in Punjab.