Occupational Status and Earnings Inequality: Evidence from PIHS 2001-02 and PSLM 2004-05

Abstract

Wage/earnings inequalities are one source of overall inequality in a country. The former inequalities in turn are closely linked with differential occupational status either defined in a contractual or productive/skill sense. Using the Pakistan Standard Classification of Occupations [PSCO (1994)], this paper estimates Gini coefficients for three types (all types, employee, selfemployed) of individuals/earners by occupational status from the Pakistan Integrated Household Survey (PIHS) 2001-02 and Pakistan Social and Living Standards Measurement Survey (PSLM) 2004-05. Long-term trends in earnings inequality from 1992-93 to 2004-05 are documented with the benchmark estimates in the Ahmad (2002) study, while the short-term trends are measured from 2001-02 to 2004-05 for self-employed and paid employee. The long- as well as the short-term trends indicate rising earnings disparities within each occupational category. Over the longer period, these disparities have risen in the range of 50 to 100 percent. Shifts across occupation and across employment status indicate doubling of the share of Shop and Market Sales and Services Workers and the transition towards becoming self-employed. A few tentative explanations for the observed increasing occupational inequalities at the individual level are: (a) Availability of credit and improved efficiency of capital market may have relaxed capital constraints of former employees and enabled them to transit as self-employed. Right-sizing and down-sizing in public organisations may also have pushed the previous employees into utilising the ‘golden handshake’ packages towards self-employment. Assuming that returns on capital (internal or borrowed) are higher and financial contracts are more lucrative than wage contracts, the situation can lead to wider disparities. (b) At the paid employee level, the fall in the share of workers in elementary occupations improved the wage contracts of those still remaining in this occupation, and thereby increased the income/earnings inequality within this category. (c) Premium on skills, education, experience, and talent, in spite of the entry of a large number of individuals in the Service, Shop and Market Sales Workers category, has widened the inequalities within this category.