Does Income Inequality Lead to Education Inequality? A Cross Sectional Study of Pakistan Section Articles


Noman Arshed
Dr. Muhammad Shahid Hassan
Osama Aziz


When firms do not know which labor is capable of efficient work, then paying all employees their average product as wage seems a feasible option. This simplest of ways discourages good workers and makes bad workers costly. Spence proposed to use educational attainment as the indicator of the labor force's capability to solve this problem. Since workers are randomly distributed in terms of their ability, Akerlof would lead us to believe that the level of educational attainment should be proportional to the individual's ability, which is not valid, practically. This study strives to find the determinants of educational inequality, where income inequality of the household is the prime suspect, and other indicators include gender, household size, and age. GMM instrumental variable approach was used to study the effect of income inequality on educational inequality. The results showed that it is income inequality, which restricts people from attaining higher education.



Ahmed, V., & OlDonoghue, C. (2010). Global economic crisis and poverty in Pakistan. International Journal of Microsimulation, 3(1), 127–129.
Acemoglu, D., & Pischke, J.-S. (2000). Does inequality encourage education? Mimeo MIT.
Akerlof, G. A. (1970). The market for "lemons": Quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 84(3), 488–500.
Alfita, L., Kadiyono, A. L., Nguyen, P. T., Firdaus, W., & Wekke, I. S. (2019). Educating the external conditions in the educational and cultural environment. International Journal of Higher Education, 8(8), 44–61.
Alvaredo, F., Chancel, L., Piketty, T., Saez, E., & Zucman, G. (Eds.). (2018). World inequality report 2018. Belknap Press.
Appelbaum, E. (2017). The labor market in post-keynesian theory: Unemployment and Inflation (pp. 33-45) NY: Routledge.
Arkorful, V. E., Basiru, I., Anokye, R., Latif, A., Agyei, E. K., Hammond, A., ... & Abdul-Rahaman, S. (2020). Equitable access and inclusiveness in basic education: Roadblocks to Sustainable Development Goals. International Journal of Public Administration, 43(3), 189–202.
Arshed, N., Anwar, A., Hassan, M. S., & Bukhari, S. (2019). Education stock and its implication for income inequality: The case of Asian economies. Review of Development Economics, 23(2), 1050–1066.
Arshed, N., Anwar, A., Kousar, N., & Bukhari, S. (2018). Education enrollment level and income inequality: A case of SAARC economies. Social Indicators Research, 140(3), 1211–1224.
Arteaga, C. (2018). The effect of human capital on earnings: Evidence from a reform at Colombia's top university. Journal of Public Economics, 157, 212–225.
Attari, M. Q., Pervaiz, D., & Razzaq, C. D. (2018). Status of Human Development in Punjab (Pakistan). Retrieved from
Baum, C. F., Schaffer, M. E., & Stillman, S. (2011). Using STATA for applied research: reviewing its capabilities. Journal of Economic Surveys, 25(2), 380–394.
Ballón, P., Cockburn, J., Dessy, S., & Diarra, S. (2018). Child monetary poverty and multidimensional deprivations: Why they differ. Journal of African Economies, 27(4), 483–512.
Bashir, H. N., Khan, R. A., & Sajjad, M. (2019). Regional wealth disparity and its impact on urban and rural child schooling in developing economies: A case of Punjab (Pakistan). Review of Economics and Development Studies, 5(4), 615–622.
Bhopal, K. (2019). Gender,'race'and patriarchy: A study of South Asian women. NY: Routledge.
Bonal, X. (2016). Education, poverty, and the “missing link”: The limits of human capital theory as a paradigm for poverty reduction. In K. Mundy, A. Green, R. Lingard, & A. Verger (Eds.), The handbook of global education policy (pp. 97–110). Oxford: Wiley.
Bredtmann, J., & Smith, N. (2018). Inequalities in educational outcomes: How important is the family? Oxford Bulletin of Economics and Statistics, 80(6), 1117–1144.
Card, D., Cardoso, A. R., Heining, J., & Kline, P. (2018). Firms and labor market inequality: Evidence and some theory. Journal of Labor Economics, 36(S1), S13–S70.
Chang, E., & Chin, H. (2018). Signaling or experiencing: Commitment HRM effects on recruitment and employees' online ratings. Journal of Business Research, 84, 175–185.
Checchi, D. (2001). Education, inequality and income inequality (Discussion Paper No. DARP52). Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
Chioda, L. (2016). Work and family: Latin American and Caribbean women in search of a new balance. Paris: The World Bank.
Cole, M. (2017). Education, equality and human rights: Issues of gender, 'race', sexuality, disability and social class. NY: Routledge.
Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signaling theory: A review and assessment. Journal of Management, 37(1), 39–67.
Cortina, R. & Stromquist, N. P. (2019). Distant alliances: Gender and education in Latin America. NY: Routledge.
Deyshappria, R. (2018). Globalization-poverty nexuses: Evidences from cross-country analysis. Empirical Economic Review, 1(1), 24–48.
Duncan, G. J., Kalil, A., & Ziol-Guest, K. M. (2017). Increasing inequality in parent incomes and children’s schooling. Demography, 54(5), 1603–1626.
Filmer, D., & Pritchett, L. (2004). The effect of household wealth on educational attainment: Evidence from 35 countries. Population and Development Review, 25(1), 85–120.
Erikson, R. (2016). Is it enough to be bright? Parental background, cognitive ability and educational attainment. European Societies, 18(2), 117–135.
Hall, K., & De Lannoy, A. (2019). Children’s access to education. Child Gauge.
Hansen, L. P. (1982). Large sample properties of generalized method of moments estimators. Econometrica: Journal of the Econometric Society, 50(4), 1029–1054.
Heckman, J. J., & Mosso, S. (2014). The economics of human development and social mobility. Annual Review of Economics, 6(1), 689–733.
Hertz, T., Jayasundera, T., Piraino , P., Selcuk, S., Smith, N., & Varashchangina, A. (2007). The inheritance of educational inequality: International comparisons and fifty-year trends. The B.E. Journal of Economic Analysis & Policy, 7(2), 1–48.
Jamal, H. (2016). Spatial disparities in socioeconomic development: the case of Pakistan. The Pakistan Development Review, 2, 421–435.
Jamal, H., & Khan, A. J. (2005). The knowledge divide: Education inequality in Pakistan. The Lahore Journal of Economics, 10(1), 83–104.
Khalid, M. (2018). The differing growth paths in reducing gender inequalities between Bangladesh and Pakistan (M. Phil Dissertation). Lahore School of Economics, Lahore. Pakistan
Kingdon, G. G. (2010). The gender gap in educational attainment in India: How much can be explained? The Journal of Development Studies, 39(2), 25–53.
Lee, J.-W., & Lee, H. (2018). Human capital and income inequality. Journal of the Asia Pacific Economy, 23(4), 554–583.
Lindahl, M., Palme, M., Massih, S. S., & Sjögren, A. (2015). Long-term intergenerational persistence of human capital an empirical analysis of four generations. Journal of Human Resources, 50(1), 1–33.
Maitra, P., & Mani, S. (2017). Learning and earning: Evidence from a randomized evaluation in India. Labour Economics, 45, 116–130.
Mayer, S. E. (2001). How did the increase in economic inequality between 1970 and 1990 affect children’s educational attainment? American Journal of Sociology, 107(1), 1–32.
McCartney, G., Popham, F., Katikireddi, S. V., Walsh, D., & Schofield, L. (2017). How do trends in mortality inequalities by deprivation and education in Scotland and England & Wales compare? A repeat cross-sectional study. BMJ Open, 7(7), e017590.
Pervaiz, Z., & Akram, S. (2018). Estimating inequality of opportunities in Punjab (Pakistan): A non-parametric approach. Retrieved from abstract_id=3213926
Psacharopoulos, G., & Yang, H. (1991). Educational attainment among Venezuelan youth: An analysis of its determinants. International Journal of Educational Development, 11(4), 289–294.
Qazi, W., Raza, S. A., Jawaid, S. T., & Karim, M. Z. A. (2018). Does expanding higher education reduce income inequality in emerging economy? Evidence from Pakistan. Studies in Higher Education, 43(2), 338–358.
Rahman, S., Chaudhry, I. S., & Farooq, F. (2018). Gender inequality in education and household poverty in Pakistan: A case of Multan district. Review of Economics and Development Studies, 4(1), 115–126.
Rodríguez-Pose, A., & Tselios, V. (2011). The determinants of regional educational inequality in Western Europe. In P. Nijkamp & I. Siedschlag (Eds.), Innovation, growth and competitiveness: Dynamic regions in the knowledge-based world economy (pp. 135-163). Drochdet: Springer.
Salami, R. O., Isaac, I., Habila, J., Salami, H., & Abutu, P. (2019). Gender analysis of access to human capital in Nigeria: A case study of school enrolment. Management, 7(2), 25–31.
Salik, M., & Zhiyong, Z. (2014). Gender discrimination and inequalities in higher education: A case study of rural areas of Pakistan. Academic Research International, 5(2), 269–278.
Savasci, H. S., & Tomul, E. (2013). The Relationship between educational resources of school and academic achievement. International Education Studies, 6(4), 114–123.
Spence, M. (1973). Job market signalling. Quarterly Journal of Economics, 87, 353–374.
Spence, M. (1974). Competitive and optimal responses to signals: An analysis of efficiency and distribution. Journal of Economic Theory, 7(3), 296–332.
Stocké, V., Blossfeld, H.-P., Hoenig, K., & Sixt, M. (2019). Social inequality and educational decisions in the life course. In H. P. Blossfeld & H. G. Roßbach (Eds.). Education as a Lifelong Process. (pp. 101-118). Wiesbaden: Springer
Stromquist, N. P. (1989). Determinants of educational participation and achievement in the third world: A review if the evidence and a theoretical critique. Review of Educational Research, 59(2), 143–183.
Stromquist, N. P., & Monkman, K. (2014). Defining globalization and assessing its implications for knowledge and education. In N. P. Stromquist & K. Monkman (Eds.), Globalization and education: Integration and contestation across cultures (2nd ed., pp. 3–26). Oxford: Rowman & Littlefield.
Trpeski, P., Eftimov, L., & Cvetanoska, M. (2016). Labor productivity and real wages in Macedonia: An overview before and after the global economic crisis. European Scientific Journal. 12 (1), 37–51.
Ullah, S., Akhtar, P., & Zaefarian, G. (2018). Dealing with endogeneity bias: The generalized method of moments (GMM) for panel data. Industrial Marketing Management, 71, 69–78.
Ullah, S., Zaefarian, G., & Ullah, F. (2020). How to use instrumental variables in addressing endogeneity? A step-by-step procedure for non-specialists. Elsevier.
Vinogradova, A., & Grinevich, J. (2020). Wages level and labor productivity relationship in different Russian economy segments in 2004–2018. Advances in Economics, Business and Management Research, 128, 1264–1269.
Weiss, A. (2014). Efficiency wages: Models of unemployment, layoffs, and wage dispersion. NJ: Princeton University Press.