Portsmouth Business School
Dr Vyoma Shah
Inter-Industry Wage Differential and Return to Education in Pakistan
Department: Economics
Email: vyoma.shah@port.ac.uk
Nationality: Indian
Director of Studies: Professor Shabbar Jaffry
Year of graduation: N/A
Thesis summary
Exact scale of pay differential between different industries remains questionable. The objective of this study is to understand the trend, pattern, individual characteristics, work conditions and job attributes and their impact on wage structure and wage differential across the different industries in Pakistan. As the education plays an important role in deciding the level of wages, study also assesses the impact return to education on explanation of wage differential.
According to the standard Walarasian model of the labour market, where the equilibrium wage is determined through marginal productivity, two agents with identical productive characteristics necessarily receive the same wages. However, the so-called compensating differences may occur between similar individuals placed in different working conditions. Indeed, the disutility undergone by one individual following the performance of a task in an unfavourable situation may lead to wage compensation.
The inter-industry wage differential can be explained by various reasons. They may reflect the fact that the non-observed individual characteristics of the employees are not distributed randomly among industries. So, the highest paid industry would simply be that in, which the non-observed quality of the labour force is the highest. Economic theories support the existence of an effect of the employers' characteristics on wages.
This study intends to use Labour Force Survey between 1990-91 and 2006-07, which covers nine different cross-sections. As LFSs are cross-sectional data, analyzing them as pooled cross-section may suffer from bias results. In using wage equations, there is now growing awareness that specific methods are needed to correct for unmeasured variables in order to obtain unbiased estimates of wage equations. So, to overcome this problem, this study has used cohort based estimation known commonly as 'pseudo-panel' for estimation. To my knowledge, there have been no prior studies of wage differential in Pakistan that have employed a dataset, which covers almost a decade.