What do you call an economy that balances its books by hollowing out its working class? Do you call it stabilizing? There is a strong reason why despite seemingly improving macroeconomic environment amid green signals on inflation and external account fronts, sentiment surveys say: “not really”.
Consumers remainlargely pessimistic, anxiety around prices is still high, more workers expect unemployment to rise in coming months,and fewer people expect to purchase a car or build a home in coming backs. And these are not just sentiments. The evidence is piling up.
It is not just that people are poorer than before because inflation has scraped off everything from their dignity to the lining of their pockets. It is also that the poor are become worse off, while the rich are faring better.
This is evidenced by the latest HIES 2024-25 which shows that monthly earnings in US dollar terms for the lowest income quintile fell by 12 percent but rose by 7 percent for the top 20 percent. As a result of this, food insecurity has grown—in FY25, 24 percent of households are facing moderate to severe food insecurity, up from 16 percent in FY19.
Labor market data tells a similar story. According to the Labour Force Survey, recent wage growth has been almost entirely nominal, particularly since the pandemic. Real wages peaked between FY19 and FY21 and have since declined. Between FY21 and FY25, nominal wages rose by 62 per cent, but adjust this for inflation and you have real wages falling by 13 per cent. In fact, real wages today are lower than they were in FY15. Said differently, today’s pay cheque buys less than it did a decade ago.
This is visible long-run stagnation. Over nearly two decades, real monthly wages have remained in a narrow band with no upward trend which means productivity gains if any, have not translated into higher purchasing power for average workers.
Let’s study HIES latest data and see if it corroborates. Average monthly income for households has grown by 98 percent in FY25 (compared to FY19). This is a large enough gap so one should expect this increase but the problem is; this doesn’t adjust for inflation.
Real household incomes between FY19 and FY25 have actually declined by 13 percent. This means that, in today’s prices, households were better off in 2019 than they are today. In fact, households earned more in real terms in FY12 than in FY25.
Both wage and household income data are sending the same message. That recent nominal gains are masking a persistent erosion in purchasing power, leaving households worse off today than they were several years, and in some cases more than a decade ago.
This squeeze is compounded by the structure of the tax system. Even when inflation doubled over the past three years, the minimum taxable income threshold remained frozen. Salaried workers are shouldering the fiscal burden as large swathes of the economy remains under-taxed.
Taxes deducted from salaries are the most reliable revenue streams of the FBR contributing reliably on average between 7 and 9 percent to the income tax revenue. In FY25 however, this share—and the burden on the salaried class—climbed to 11 percent. In absolute terms, collections from salaried individuals have risen more than seven-fold over the past decade, far outpacing wage and income growth.
This has been an outcome of higher marginal rates, withdrawn exemptions and repeated surcharges, not higher paying jobs and rapid formalization. Income tax is only part of the burden. Salaried households also pay indirect taxes on almost every transaction, from electricity and fuel to education and healthcare. Marginal income tax rates of up to 35 percent, coupled with surcharges, have compressed disposable incomes at precisely the moment inflation was also doing its damage.
When wages fail to keep pace with prices, and the state leans harder on those easiest to tax, the result is structural deterioration of ordinary households. What we are witnessing here is not a temporary dip in living standards.
Unless growth translates into real purchasing power, the promise of economic stabilization will remain something we read in press releases. Let’s say it with all our chest: for millions of workersand households today, the economy has not recovered; it has simply learned how to exclude them.
Copyright Business Recorder, 2026