This paper estimates the Mincer wage model for Pakistan’s labor market, using a relatively recent dataset and new independent variables. We employ instrumental variables and two-stage least squares to address the problem of the endogeneity of education. Our results show that the returns to education are biased downward due to endogeneity, with significant wage gaps emerging among different regions, between genders and between urban and rural job markets. The study’s choice of instruments has conceptual as well as empirical grounds. Our findings establish that the wage determination process is different for males and females across provincial labor markets.
KEYWORDS: Endogeneity of education, human capital model, instrumental variables, Mincer regression, labor market, returns to schooling, Pakistan.
JEL: C26.

This paper aims to provide a more comprehensive understanding of the impact of financial developments on output volatility. Using cross-sectional and panel datasets for 79 countries from 1961 to 2012, we find that financial expansion plays a significant role in mitigating output volatility, although the evidence is weak in some cases. The role of financial stability is more prominent than that of other measures of financial growth in mitigating output volatility. The volatility of terms of trade and inflation contributes positively to increasing output volatility. We also evaluate the channels through which financial developments can affect output volatility. Our model investigates the link between financial growth and output volatility through two potential channels, using four measures of financial development. The volatility of inflation and of terms of trade are used as proxies for monetary sector and real sector volatility, respectively. Financial development plays a mixed role in amplifying or mitigating output volatility through real and monetary sector volatility. Overall, there is some evidence to suggest that financial development amplifies monetary sector volatility, but weaker evidence that real sector volatility is reduced by financial development.
KEYWORDS: Output volatility, financial development, panel data.
JEL: O16, E30, E51, G20.