Human Capital


Human Capital theory takes into account the growth of knowledge, skills and abilities of individuals and emphasizes theaugmentation of the educated population and skilled manpower. Nevertheless human capital formation is a prerequisite for the development of physical capital and serves as a key to sustainabledevelopment. In the human capital model, an individual’s earnings are the output of his own production function, where education and experien eare treated as the factors of production. Inequality in income results from the distribution of human capitalacross individuals in a non-degenerate way. Human capital formation isinfluenced by 'home-education’, imparted by the parents, as well as formalpublic and private sector schooling. However, there is dualism in schooleducation; the large majority is in the public school, and the children ofthe elite group receive education from convent type (private) schools. Theliteracy life expectancy (LLE) was 27 years and 13 for male and femalerespectively; the LLE for men was at least twice than for women (Lutz etal, 2004). The Human Capital model in this study is an extension of Becker(1962) and Mincer (1974) models, used to quantify the returns toinvestment in education. Since education is the main source of humancapital development, a large number of studies have estimated the returnsto education for different countries [(Psacharopoulos, 1980, 1985, and1994); (Psacharopoulos and Chu Ng, 1992)]. These studies mostly have used binary instead of continuous variables. There were only a few studies available in Pakistan that used the Mincerian Earnings Function approach to examine the returns to education [e.g. (Shabbir and Khan, 1991); (Shabbir,1994); (Nasir and Nazli, 2000)]. The previous studies estimated the earnings function only for wage earners, whereas this study provides estimates for earnings functions of all employed groups (employers, self-employed, wage earners, unpaid family workers) by using the most recent data sets available in Pakistan.

 

 The Mincerian earnings function was based on the assumption of uniform rates of return for all schooling.

 

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