Fall in real incomes and rise in poverty

The last three years have witnessed a negative combination of low GDP growth rate and high rate of inflation. This has led to two types of impacts. First, the unemployment rate has gone up drastically. Second, a large percentage of employed workers are likely to have experienced a fall in real incomes due to the high inflation. Combined, these two impacts have caused a spiralling up of the level of poverty incidence in the country.

The average GDP growth rate in 2022-23, 2023-24 and 2024-25 has been only 1.7 percent. The economy contracted in 2022-23 due to the floods. Four sectors absorb over 75 percent of the employed workers. These sectors are agriculture, manufacturing construction and wholesale and retail trade. The last three-year average growth rates of these sectors are as follows:

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            ( percent)

Agriculture 3.1

Manufacturing -0.3

Construction -1.6

Wholesale and

Retail Trade -0.2

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Therefore, three of the four labour-intensive sectors have seen a decline in the overall real level of value-added. This is likely to have had the inevitable consequence of a big decrease in the number of employed.

The Population and Housing Census of 2023 determined the employment situation in Pakistan in the second half of 2022-23 and the first half of 2023-24. It reports that the labour force was almost 85 million. The number of employed workers was 66.2 million and the number of unemployed at close to 18.8 million. This implies an unemployment rate in the country of 22.1 percent.

The unemployment rate in 2023 of over 22 percent is a peak level in the unemployment rate over the 30-year period, from 1998 onwards. There have been three Population Censuses during these years, respectively in 1998, 2017 and 2023. The reported unemployment rates in these Censuses are as follows:

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           (percent)

1998 19.7

2017 9.4

2023 22.1

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Therefore, there was an increase in the unemployment rate by over 12 percentage points between 2017 and 2023. The likelihood is that the bulk of unemployed workers would have fallen below the poverty line due to zero earned income.

Turning to the rate of inflation, the average rate during the last three years is also historically unprecedented. The annual rates of inflation have been as follows:

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          (percent)

2022-23 29.2

2023-24 23.4

2024-25 4.7

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This implies an average rate of inflation of over 19 percent during these years. The year 2022-23 witnessed the highest-ever rate of inflation. Fortunately, 2024-25 has seen a big process of stabilization of prices in the economy.

The fundamental issue is the impact of the average double-digit inflation on the real incomes of employed workers. Have their nominal incomes risen in line with the rate of inflation, and thereby preserved their real incomes and living standards? Otherwise, many of the employed workers may have also been fallen into poverty.

The Consumer Price Index of the Pakistan Bureau of Statistics (PBS), with the base-year of 2015-16, contains the wage index of workers who directly contribute to the living costs of households or price index charged for different services from households, corresponding thereby to a proxy for income of the self-employed or of production units.

A vivid example is of wages index of construction workers, as reported by the PBS. This includes both unskilled and skilled workers, ranging from a labourer to a plumber and a mason. As of the June 2025, the index of construction wages stands at 227.5, with the base year, 2015-16, equal to 100. It was 174.3 in June 2022.

Therefore, over the three years, the cumulative increase in average wages of construction workers has been 30.5 percent. During the same period from June 2022 to June 2025 the overall increase in the consumer price index has been 50.7 percent. This implies that the real wages on average of construction workers have fallen by as much as 20.2 percent since 2022.

The implication of this gap between the rise in nominal wages and prices is that a large percentage of even employed construction workers may have been pushed into poverty. For example, the average wage of a construction labourer is reported as Rs 1,152 on a daily basis. This is not even up to the minimum wage of Rs 37,000 in Pakistan.

There are other workers also whose wage index is reported by the PBS. A comparison is made between the rise in the nominal wages and in the price index for household servants and garbage collection. The respective fall in real wages is 19.4 percent and 18.2 percent.

Similarly, the prices charged for cleaning and laundering, tailoring and car mechanics services have also fallen in real terms, according to the PBS, by 11.8 percent, 2 percent and 3 percent respectively.

There are exceptions to these findings. Prices charged for services catering to upper income households have fortunately seen a rise in the real price because of continued high level of demand. This includes doctors’ fees, dental services, transport services and personal grooming services. The real increase in the price of these services is 12 percent, 15 percent, 2 percent and 15 percent, respectively.

Overall, we have two major findings. First, the unemployment rate has spiralled up to a peak of over 22 percent in 2023 and may have even increased further by June 2025 because of the low growth rate of only 2.7 percent in 2024-25. Second, real incomes of the employed in sectors like construction and personal services have fallen. Consequently, these two negative trends have combined contributed to a peak in the incidence of poverty in Pakistan of 44 percent.

Tackling poverty will require a significant jump in the GDP growth rate to significantly boost labour demand.

The target growth rate in 2025-26 is 4.2 percent. With this growth rate, if achieved, employment will increase by 2.5 percent. However, the labour force rises annually by 3 percent. Therefore, even with a significantly higher GDP growth rate in 2025-26, the unemployment rate could continue to rise. A minimum GDP growth rate of 5 percent is required for the process of higher employment and poverty reduction to commence once again in Pakistan.

Copyright Business Recorder, 2025