Measuring the Changes in Income Distribution of Pakistan

Abstract

A continuous rise in income inequality is a highly debated theme as many changes in the structure of income distribution have happened in Pakistan. This study explores the changes in income distribution during 1998-2018 in Pakistan. The study has used PIHS 1998-99 Pakistan Social and Living Standard Measurement survey data for 2007-08, and 2018-19, collected and administrated by the Pakistan Bureau of Statistics (PBS). Oaxaca-Blinder decomposition methodology is used for estimation. The findings of the study show that education and experience significantly increase the average income. Oaxaca-Blinder decomposition indicates that the wage gaps are; 0.172 between 1998-2007, -0.062 between 2007-2018, and 0.110 between 1998-2018, and significant at a 1% significance level. The wage gap was positive between 1998-2017 and 1998-2018, implying that the wage inequality increased in that period mainly due to the coefficient component, while the wage gap was negative between 2007-2018, showing the decrease in wage inequality due to the endowment component. Moreover, the endowment component of decomposition is negative for all years of interest and highly significant except for the wage gap during 1998-2007. The coefficients component is highly significant and positive for all the years, meaning that applying the coefficients of the labor force in 2007 and 2018 to the characteristics of the labor force in 1998. The interaction component is negative during 1998-2007 and 1998-2018 whereas positive during 2007-2018 and has a high p-value, except for 1998-2018. It is recommended that government policies should ensure an equitable distribution of income.