Income inequality in Pakistan

Abstract

PurposeIn most developing countries like Pakistan, the gap between rich and poor has widened over time. This polarization in the society hinders economic growth and acts as a barrier for development and well-being. The proportion of income distribution varies across the population sub-groups in Pakistan. Therefore, it is important to study the income distribution effects across the four provinces of Pakistan.Design/methodology/approachThis study attempts to explore the root causes of income inequality and its changes in a dynamic context across the four provinces of Pakistan over a decade (2005–2006 to 2015–2016) by using a regression-based inequality decomposition method.FindingsAge, gender and higher education are the most prominent factors explaining the level of inequality across the four provinces of Pakistan. Higher education enhances the level of inequality in all provinces but contributes negatively to its changes except for Balochistan. Skilled agricultural and fishery workers in Balochistan have contributed significantly to reducing the level of inequality over the decade but not to its changes. Healthy contribution of the unpaid family workers in economic activities has reduced the level of inequality in Punjab and Balochistan and contributed positively to the change in income inequality. Employer or self-employed workers enhance the level of income inequality but contribute negatively to its changes for Punjab and Balochistan.Originality/valueTo date, inequality literature on Pakistan focuses on economic growth and poverty. A handful studies focus on the determinants of income inequality in a static context. This study goes beyond the static decomposition tools and attempts to explore the determinants of inequality in a dynamic context.Peer reviewThe peer review history for this article is available at https://publons.com/publon/10.1108/IJSE-09-2021-0573.