Returns to Schooling, Ability and Cognitive Skills in Pakistan

The paper aims to analyze the relationship between economic outcomes such as occupation, earnings and economic activity on one end and education, cognitive skills and ability on the other end. Multinomial logits, Ordinary Least Squares, Instrumental Variables and household fixed-effects are applied on data generated from purpose-designed survey 2006-2007 conducted in nine districts of Punjab and N.W.F.P, Pakistan. Findings reveal that although cognitive skills promote entry into lucrative markets (women require basic skills as opposed to men that must higher order cognitive skills) they are unable to independently impact earnings.

Similarly, measured ability does not impact earnings for either men or women with an economic rate of return of merely 5%. Men have a direct return to schooling as opposed to women who have a return to cognitive skills confirming the existence of human capital hypothesis for females and credentialist hypothesis for males. It is held that education raises earnings and productivity for waged women and this highlights the need to focus on public spending on education. The study concludes that education is positively correlated to productivity/earnings for both the genders although the education-earning relationship is convex which indicates higher returns to education at higher educational level.