Appraising the lifetime private economic returns of postgraduate degrees: Evidence from Pakistan

The study investigates the private economic returns of postgraduate education, specifically focusing on the difference in lifetime earnings between Ph.D. and non-Ph.D. faculty members in Pakistani universities. This research is driven by the significant increase in public sector investment in higher education in Pakistan over the past two decades. The human capital theory underpins the study, which posits that individuals invest in education based on the expected return on their investment. Previous research on returns to education has generally shown a positive impact on lifetime earnings, although the specific returns vary based on educational level and context. The study's unique contribution lies in its focus on the Pakistani higher education sector, specifically comparing domestic and foreign Ph.D. holders, and in its use of a simulation process to calculate lifetime net present values (NPVs). The rapid growth of universities and faculty in Pakistan in the past two decades makes this a timely and relevant analysis, offering valuable insights for policymakers and prospective students.

The literature review explores existing research on the private economic returns to education, citing key works such as Schultz (1961), Becker (1964, 1974, 1993), and Mincer (1974). It highlights the human capital theory and its application in various studies across different countries and educational levels. The review includes studies that have explored private returns in Pakistan, focusing on analyses using various methodologies including the internal rate of return (IRR) and earning functions. Previous research consistently demonstrates a positive relationship between higher education and increased earnings, though the magnitude of these returns varies significantly. Several papers that analyzed Pakistan's education system are included, focusing on the growth of the higher education sector after the establishment of the Higher Education Commission (HEC) in 2002 and the resulting expansion in the number of universities and faculty members. The review also notes that existing studies have primarily focused on rates of return for individual years of schooling, rather than comprehensive lifetime returns, making this current study a notable contribution.

The study employs a mixed-methods approach, combining a questionnaire-based survey with econometric analysis. Data was collected through a stratified random sample of 784 Ph.D. and non-Ph.D. faculty members from various universities across four provinces in Pakistan. The sample was designed to ensure representation across gender, sector (public/private), and discipline. The primary data collection method was a structured questionnaire administered in person. The methodology focuses on estimating private economic returns through two main steps. First, it uses a modified version of Mincer’s (1974) earning function to estimate the relationship between earnings and several explanatory variables including level of education, experience, sector of employment, gender, and discipline. The ordinary least squares (OLS) method was used for regression analysis. This model helps determine the baseline earnings for different educational groups and experience levels. Second, the study utilizes a simulation process to estimate lifetime net present values (NPVs) for both Ph.D. and non-Ph.D. faculty, considering the cost of education (both explicit and implicit costs—foregone earnings), and a 7% discount rate. The simulation is performed considering different scenarios (varying retirement age, Ph.D. completion time, and interest rates) for sensitivity analysis. The NPV method allows a comprehensive assessment of the long-term financial benefits of the Ph.D. degree by comparing total lifetime earnings with total costs incurred.

The key findings highlight the significant lifetime private economic returns associated with a Ph.D. degree in Pakistan. The study finds that Ph.D. degree holders from Pakistani universities experience an average lifetime economic return that is 46.5% higher than their non-Ph.D. counterparts. Those with foreign Ph.D.s earn 29.8% more. This difference is explained by the substantially higher cost of obtaining a foreign Ph.D. degree. The regression analysis shows a strong positive correlation between monthly earnings and holding a Ph.D. degree, as well as experience (with diminishing returns to experience). The study notes that public sector employment yields higher salaries than private sector. Job switching also plays a significant role, with faculty members who switched jobs earning more than those who did not. Sensitivity analysis indicates that varying the retirement age (55, 60, 65 years) or the time taken to complete a Ph.D. degree influences the NPV of earnings, but does not overturn the main findings. Increasing the retirement age raises the NPV for both domestic and foreign Ph.D. holders; while increasing the Ph.D. completion time leads to reduced NPV. Changing the discount rate to 3% or 11% similarly affects the NPV but does not qualitatively change the results. Gender disparity is also evident, with male Ph.D. holders consistently having higher lifetime earnings than female Ph.D. holders. Finally, it shows that the cost of a Ph.D. contributes to the reduction in private economic returns.

The findings demonstrate that a Ph.D. degree in Pakistan provides substantial private economic returns despite the longer time required to complete the degree and the opportunity costs involved. The study highlights the importance of considering both the cost and the benefit of the Ph.D. degree. The difference in NPV between domestic and foreign Ph.D. holders underscores the importance of considering the financial implications of pursuing a degree abroad. This is particularly relevant for policy makers who need to account for such costs when supporting postgraduate education. The observed gender disparity in earnings highlights the need for policies to address the persistent challenges women face in the academic sector. These findings contribute to the existing body of literature by providing country-specific evidence from Pakistan on lifetime returns to postgraduate education, and by utilizing a comprehensive methodology that accounts for the complexities of long-term financial investments in education.

The study concludes that pursuing a Ph.D. degree in Pakistan is a financially worthwhile investment, particularly for those who complete their degrees domestically. However, the study also reveals significant gender disparities in earnings. The authors suggest several policy implications. Policymakers should consider increasing the salaries of Ph.D. holders, particularly those with foreign degrees, and provide better financial support to Ph.D. students to reduce the opportunity cost. Raising the retirement age could further enhance the financial benefits of the Ph.D. degree. Future research could extend this analysis to other sectors beyond academia, and explore the broader non-financial benefits of postgraduate education.

The study's limitations include reliance on cross-sectional data, which restricts the ability to draw causal inferences. The data collected is from a specific period, affected by the COVID-19 pandemic, and may not fully capture the long-term trends in the job market. The sample is limited to faculty members within universities and does not encompass the broader range of employment opportunities for Ph.D. graduates. The survey response rate may not fully represent the entire population of Ph.D. and non-Ph.D. faculty members, introducing a potential source of bias. Finally, the study primarily focuses on private economic returns, neglecting the potential social returns that also contribute to the benefits of education.