LAHORE: The middle class has been increasingly “squeezed” in Pakistan in recent years due to relatively higher inflation in housing rents and the unprecedented rise in domestic electricity and gas tariffs.
Since 2013-2014, cumulative rents have increased by 44%, against an overall increase in the consumer price index of 38%. At the same time, the electricity tariff increased by more than 60%, while the gas tariff jumped 167%.
According to a recent UNDP report on Pakistan’s National Human Development Report titled “The Three Ps of Inequality: Power, People and Politics,” in 2007-2008, 42% of Pakistan’s population was in the middle class, which fell to 36% in 2018-2019, which implies that the middle class is increasingly “in a hurry”.
Today, the Pakistani middle class is in dire straits. Like much of the rest of the population, a large portion of middle-class households struggle to make ends meet. As COVID-19 has resulted in layoffs and large-scale pay cuts, it is becoming increasingly difficult for the middle class to support themselves.
Despite the pressure of inflation, unemployment and the decline in purchasing power parity, the middle class does not fall into the category of people eligible for social protection or most social assistance, unlike the poorest income bracket. As their means become more limited, the middle class is largely alone as it has been pushed to the bottom of the pyramid over time.
The majority of studies on inequality have historically focused on the richest and poorest income groups while the middle class is still neglected. Since the middle class has sometimes been characterized as a group whose per capita spending is in the order of 25% more or less (plus or minus) the median per capita spending. Thus, the experiences of the middle class to gauge inequalities are important.
There are several reasons for studying the evolution of the size and standard of living of the middle class. A large and expanding middle class is a key sign of a rapidly growing economy. The middle class also plays an effective role in promoting social and political change. Additionally, it can act as a force to counter elite capture of state resources. The middle class has often been seen as the population group that runs the economy.
According to the report, during Musharraf’s time, real per capita income of the middle class grew at a relatively high rate, almost 5% per year. Thereafter, the growth rate was much lower, falling to just 1.2% between 2013-2014 and 2018-2019. The main reason for this decline in the dynamism of middle class incomes is the increase in the unemployment rate of educated workers, who are a key component of the middle class. While in 2007-2008, the unemployment rate of workers with a diploma or postgraduate diploma was below 5%, while it rose to over 16% in 2018-2019.
In recent years, employment opportunities for middle-class workers in the formal sector – including large-scale manufacturing, banking and finance, electricity and gas, and public administration – increased much more modestly than in the informal sector.
The most compelling evidence of this squeeze is the dramatic drop in middle class savings rates. In 2001-02, they were close to 3%, before rising to over 7% in 2007-08. After 2008, their savings rates fell sharply, falling to less than 3%.
The regional distribution of the middle class is concentrated in Pakistan’s two largest provinces and in the country’s urban areas. Almost 80 percent of Pakistan’s middle class live in Punjab and Sindh, while urban centers are home to nearly 48 percent of middle-class households.