Education and the Income Differential: An Estimation for Rawalpindi City

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.