The literacy rate for Pakistan is among the lowest across the world.
At 58 percent, the rate is comparable to that of Nigeria (62pc) and Sudan (60pc), while all South Asian peers rank significantly higher. To address this issue, a common approach has been to argue for greater public investment in education.
While this remains critical, it is important to consider the other dimension to this problem: how a country’s economy rewards an individual’s investment in human capital.
Answering this question is crucial. If education leads to better financial outcomes, policymakers face a relatively straightforward challenge: improving access and increasing enrollment in schools. If not, the challenge becomes more daunting. Beyond access, policymakers must also reform regional economies such that investment in education becomes worthwhile for most.
A large body of literature, starting with economists Gary Becker and Jacob Mincer, uses survey data on individuals’ income, schooling and household characteristics to estimate private returns to education. The 2019-20 Pakistan Social and Living Standards Measurement (PSLM) survey provides relevant data for Pakistan.
Comparing differences in annual income for individuals who have similar levels of experience but different levels of schooling reveals that, on average, an individual’s annual income increases by nearly 8pc with an additional year of schooling.
This analysis, however, does not fully capture the true relationship. An individual may end up with both higher levels of education and better economic outcomes due to parental background, household wealth, where they live, and other such characteristics. To address this, the education and income levels of working individuals who are living within the same household were compared. Since the labour market discriminates against female labour, differences in gender were also taken into consideration.
From a purely financial perspective, holding gold or investing in urban property may be a better option for many across Pakistan than investing in education
The findings show that, on average, return to an additional year of schooling falls to just 4pc when controlling for household characteristics and gender. Returns to education also vary considerably across districts, highlighting geographical disparities. In 70 of the 126 districts, the average returns to an additional year of schooling are equal to 4pc or less. In 42 districts, these are 3pc or less.
A crude comparison will help appreciate the gravity of the situation. From a purely financial perspective, holding gold or investing in urban property may be a better option for many across Pakistan than investing in education.
Could inherent ability also influence both educational attainment and job success? To control for this, researchers compare differences in the education and income levels of identical twins. While the PSLM dataset does not help identify identical twins, one can identify if the siblings are twins. The returns to education fall to a meagre 1.1pc once this is taken into consideration.
While these results should be interpreted with caution due to data limitations and measurement issues, they nonetheless highlight an alarming trend: education’s economic payoff is far from assured.
Why is this so? Pakistan’s economic structure provides part of the explanation. Ranking at 99th position out of 145 countries on the Economic Complexity Index, Pakistan remains reliant on low-skill sectors like agriculture, construction, and basic manufacturing. These industries offer minimal incentives for investing in human capital.
Sectors such as autos, textiles, dairy, and sugar are also protected with tariffs ranging from 40pc to nearly 200pc, rendering them artificially profitable but technologically stagnant. This policy bias locks both capital and labour into low-value-added activities that do not reward skills and education.
The poor quality of education compounds the problem. According to the World Bank, a child in Pakistan who starts school at age four can expect to complete 9.4 years of schooling by age eighteen. Yet, in terms of learning outcomes, these years translate into only 5.1 years of effective learning, well behind Bangladesh (9.3) and India (6.8).
These findings point to the need for a comprehensive redesign of strategies to address Pakistan’s education crisis. First, instead of perceiving the education crisis as purely a supply-side challenge, policymakers must simultaneously address factors that undermine demand for a better-educated labour force.
Second, the regional disparity in returns to education reflects the disparity in both the quality of education and economic opportunities across districts. An effective local government system, with financial and administrative autonomy, is critical for addressing this challenge. It should not only have the incentive and resources to fix schools, but also to compete with its peers to generate economic opportunities.
Last, while overall returns are low, returns for women are at least twice those for men. Reducing barriers for girls is therefore not just a moral imperative; it is an economic necessity.
Published in Dawn, The Business and Finance Weekly, August 4th, 2025
