· What do we call an economy that balances its books by hollowing out its working class? Stabilization in name only.
· Despite positive macroeconomic indicators—such as lower inflation and improvement in the external account—sentiment surveys indicate that the general public is far from convinced.
· Consumers continue to feel pessimistic about their financial situation:
o Anxiety around rising prices remains high.
o More workers expect unemployment to rise in the coming months.
o Fewer people are planning to purchase major items such as cars or build homes.
· These trends are not just perceptions—they reflect real economic stress affecting households across income groups.
Income Inequality and Poverty
· Inflation has reduced the value of earnings, leaving many households struggling to maintain basic living standards.
· Poor households are becoming worse off, while the wealthier segments of society continue to benefit.
HIES 2024-25 findings highlight this divide:
o The lowest income quintile saw monthly earnings fall by 12% in U.S. dollar terms.
o In contrast, the top 20% of earners saw a 7% rise in their monthly income.
o Food insecurity is on the rise, with 24% of households now experiencing moderate to severe food insecurity, up from 16% in FY19.
Labor Market and Wage Stagnation
· Recent labor market trends demonstrate a disconnect between nominal wage growth and real purchasing power:
o According to the Labour Force Survey, real wage growth has lagged behind inflation, especially since the pandemic.
o Between FY21 and FY25, nominal wages rose by 62%, but real wages fell by 13% after adjusting for inflation.
o Today, real wages are lower than they were in FY15, meaning the average pay cheque buys less than a decade ago.
· Over nearly twenty years, real monthly wages have remained largely stagnant.
Household Income Trends
· While average household income increased by 98% between FY19 and Fy25, this figure ignores inflation.
· When adjusted for inflation, real household income actually fell by 13% over the same period.
· Households were better off in real terms in 2019, and even as far back as FY12, than they are today.
· Both wage and household income data send the same message: recent nominal gains are masking persistent erosion in purchasing power, leaving households worse off than they were several years or even a decade ago.
Taxation and Fiscal Burden
· The structure of the tax system compounds the squeeze on households:
o Minimum taxable income thresholds have remained frozen, despite inflation doubling over the past three years.
o Salaried workers bear the brunt of taxation while large portions of the economy remain under-taxed.
· Income tax contributions from salaried individuals, usually accounting for 7–9% of revenue, rose to 11% in FY25.
· This increase is due to higher marginal rates, withdrawn exemptions and repeated surcharges—not higher-paying jobs or rapid formalization.
· In addition, salaried households pay indirect taxes on nearly every transaction, from electricity and fuel to education and healthcare.
· Marginal income tax rates up to 35%, combined with surcharges, have compressed disposable incomes at the same time inflation was eroding purchasing power.
Structural Implications
· Wage stagnation, rising prices, and a heavy tax burden are causing long-term deterioration of ordinary households' financial well-being.
· This is not a temporary dip in living standards; it represents a structural challenge.
· Unless economic growth translates into real purchasing power, promises of stabilization will remain mere statements in press releases.
· For millions of workers and households, the economy has not truly recovered; it has learned how to exclude them from the benefits of growth.
The writer is a student at KEMU, Lahore.
