Human Capital, Productivity, and Stratification in Rural Pakistan

This paper investigates the effects of human capital on productivity using micro panel data of rural households in the North‐West Frontier Province, Pakistan, where a substantial job stratification is observed in terms of income and education. To clarify the mechanism underlying this stratification, the human capital effects are estimated for wages (individual level) and for self‐employed activities (household level), and for farm and non‐farm sectors. Estimation results show a clear contrast between farm and non‐farm sectors—wages and productivity in non‐farm activities rise with education at an increasing rate, whereas those in agriculture respond only to the primary education.