Economic Returns to Schooling and Skills – An Analysis of India and Pakistan

This paper investigates the economic (i.e. labour market) outcomes of education for individuals in India and Pakistan. The labour market benefits of education accrue both from education/skills promoting a person’s entry into the more lucrative occupations and by raising earnings within any given occupation. Our research looks at both these channels of effect from education onto economic well-being. This is done using data from two unique purpose-designed comparative surveys of more than 1000 households in India and Pakistan, collected in 2007 and 2008. Multinomial Logit estimates of occupational attainment reveal how years of education and the quality of education determine occupational choice. We estimate the returns to the ‘quantity’ and the ‘quality’ of schooling in different occupations (wage employment, selfemployment and agricultural self-employment). The paper also examines the shape of the educationearnings relationship as a way of testing the poverty reducing potential of education. Much of the analysis is done by gender and we ask whether education lowers the gender gap in earnings. Finally, the paper estimates the returns to knowing ‘English’ in the labour markets of the two countries.