Education and the Income Differential: An Estimation for Rawalpindi City

Khalil A. Hamdani


Empirical tests of the human capital hypothesis—that education
increases an individual's income—have been undertaken in several
countries with favourable results [13]. These results show that (1)
income differentials between individuals of different educational levels
are wide; (2) the differentials establish shortly after the initial
years of work and maintain through the duration of the life cycle; (3)
the differentials are greater in developing countries than in developed
countries; (4) the returns to education, after allowing for educational
costs, exceed the returns to physical capital investment in developing
countries; (5) the highest returns are to primary education; and (6)
private returns exceed social returns. Which, if not all, of these
results are true for Pakistan is not known. This paper yields such
comparative results through an application of the human capital
hypothesis to Rawalpindi City. The data for Rawalpindi are for males and
derive from a socio-economic survey conducted by the Pakistan Institute
of Development Economics in 1975.

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