Within Group Earnings Inequality in Pakistan: The Role of Education

Abstract

Income distribution plays a significant role in economic development of a country. Income equality help in improving socioeconomic condition of a country. In Pakistan, earning inequality increase due to increase in the level of education. Also, Pakistani income controlled by only 20% families of Pakistan. The aim of this paper is to provide evidence and some explanations for within-group earning inequality in three broadly defined educational groups in Pakistan during 1998–2018. Based on six surveys data sets, study indicates that growth in within groups’ inequality is mainly due to an increase in the earnings gap at the upper half of distribution for primary and secondary group. One surprising finding is a decline of inequality at the lower as well as upper half of earnings distribution within tertiary group. Using quantile regressions, we discovered that within-group inequality is lowest in the primary group and highest in the tertiary group in all years. Furthermore, earnings inequalities within all educational groups have increased, while episodes of within-group inequality differ across periods and groups. The main explanatory factors are capital-skills complementarity, technological change, and labour market flexibility. JEL classification: J23, J31