The paper explores the earnings differential between public and private sectors in
Pakistan. The private sector is further divided into formal and informal sectors for
comparison purposes. It utilises an expanded version of the human capital model to
determine important determinants of earnings in each sector. Using standard technique,
the earnings are decomposed into two parts, i.e., differential due to personal
characteristics and due to earnings structure of the particular sector. The Labour Force
Survey 1996-97 is used for the analysis of wage differential. Results indicate that
workers in public sector earn more than both private formal as well as informal sector
workers. These earnings are higher due to their superior personal human capital
endowment; however, the wage structure of the public sector is not helping them. The
informal sector workers are earning lower than both public sector and private formal
sector workers due to both personal characteristics and wage structure of the informal
sector.