Wage growth and gender pay gap in Pakistan

Over the last 15 years, there has been no major policy initiative regarding the labour market and its well-being

Dr Hari R Lohano December 22, 2018
The writer is an economist based in the UK. He can be reached at [email protected]

The PTI-led government has completed its first 100 days in power. It is organising special programmes and making tall claims for its achievements. Opposition parties, on the other hand, are denouncing these claims and criticising the government for its failure to achieve anything of significance. One major policy, missing from both the government’s list of successes and the opposition’s criticisms, is the state of wages and the widening gender pay gap. This is at a time when inflation in the economy is running at over 6%, a three-year high, and the rate of interest has increased to more than 10%.

Fortunately, this missing element in the public policy debate is filled by a report by the UN’s International Labour Organisation. Its flagship report, ‘Global Wage Report (2018/19): What lies behind gender pay gaps’, was released in the last week of November and provides detailed information of trends in wage growth, inequality in wages and gender pay gap around the world.

The report estimates that the average World Labour Force participation rate stands at about 62% of the working age population. Approximately 3.3 billion individuals are in employment. Over half of those employed are wage and salary earners. On average, the income earned from wages, as a share of total household income, varies from over 40% in low- and middle-income countries like Pakistan, to 60 to 80% in the advanced economies like the US. Growth in real wages, therefore, is important to an understanding of the nature of economic growth and its impact on the distribution of income and the living standards of different income groups in the economy.

The ILO report reveals that globally wage growth declined from 2.4% in 2016 to 1.8% in 2017. This is the lowest growth in real wages since the financial crisis in 2008. This slowdown in the wage growth is despite rapid economic growth and a low rate of unemployment in the advanced and emerging economies in the world including the US. At regional level in South Asia and in the Pacific countries including Pakistan, the trend for decline in real wage growth was the same. This is a new phenomenon – where the economy is growing and unemployment is falling to historically low levels, and there is no growth in real wages.

This does not, however, provide a complete picture of the disparity in wages. The report analyses the inequality in wages through the Gini coefficient. The report finds that the global wage inequality score was 35.5% in 2017. This figure is lower in higher-income counties, with Sweden the lowest at 19.5%, and higher for the low-income countries, with Tanzania highest at 53.6%. Pakistan, in the lower-middle income countries, has a score of 48.4%. This is the highest in this category and more than 11 points above the average for these countries. This indicates a wide gap in real wages in society.

The report mentions a number of obstacles for women’s participation in the labour market and their more limited access to higher-paid employment opportunities. If their unpaid caring for family and other household activities are also considered, women work longer hours than men. The report reveals that, on average, across the world, women are paid 21% less than men. This gender pay gap is higher for Pakistan, 43.8%, than for any other country. Moreover, the report finds that on average the hourly gender pay gap, globally, is higher in the private sector, 16.6%, than in the public sector, 13.1%. For Pakistan, the report finds that the hourly gender pay gap is higher in the private sector, 46% against 5% in the public sector. The gap is even higher between part-time employment, 77%, and full-time, 30%.

The findings of the report, however, appear to provide only a partial picture of the wages and gender pay gap, as it only covers formal employment where minimum wages are applicable. The highest employer of labour is the agricultural sector, 42%, followed by the service sector, 38%, and the industries sector, 20%, in 2017. Overall, this share has remained the same during the last 15 years.

Pakistan passed its first major legislation for minimum wages, the Minimum Wage Ordinance, as long ago as 1961, yet its coverage is still limited. Effectively, the legislation excludes employees working in the informal and the rural and agricultural sector of the economy. These sectors are the backbone of the country’s economy and the majority of poor labourers work and live in these areas. Rural wages are considerably lower than those in urban areas and women are paid much less than men.

Over the last 15 years, there has been no major policy initiative regarding the labour market and its well-being. Over half of the total labour force, 60%, is in vulnerable employment, which is characterised by poor working conditions, inadequate social security and the lack of a voice at work. The majority of those vulnerably employed are women. After the passage of the 18th amendment in April 2010, it fell within the domain of provincial governments to set minimum wages through provincial minimum wages boards. Presently there is no formal framework to ensure that those doing the same job in different provinces are paid the same wages. The institutional arrangements between the centre and the provinces, and within the provinces, also appear to be less clear and are not consistent with each other.

There has been no increase in real wages in the last two years. Effectively, after the rise in inflation and the hike in the prices of food and utility services in the last 100 days, real wages have declined considerably. This adverse effect on real wages is most likely higher for women than men as their wages are lower than men’s and the majority of them are working in the informal, rural and agricultural sectors of the economy.

The ILO’s report is an important contribution in the drive to improve real wages and to reduce both wage inequality and the gender pay gap around the world. It provides a number of policy ideas. In Pakistan, the PTI-led government and the provincial governments in their respective provinces need to consider: i) extending the minimum wage legislation to workers in the agricultural, rural and informal sector of the economy, ii) taking measures to protect minimum wages from the effects of inflation, and, iii) reforming the regressive taxation system by increasing taxation on the corporate sector and using the resulting fiscal space to address Pakistan’s gender pay gap and wage inequality.

Published in The Express Tribune, December 22, 2018.
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