How growing pay gap threatens economic stability

LAHORE: Pay inequality has become a growing concern in Pakistan, reflecting trends in developed economies where the gap between the lowest and highest earners has widened significantly. The absence of stringent policies regulating executive pay and ensuring fair wages has exacerbated this disparity.

Pakistan’s widening pay gap is not just an economic issue -- it is also a social and political challenge. If left unaddressed, it could lead to higher unemployment, brain drain and social unrest. A balanced wage policy that ensures fair earnings across all economic classes is essential for sustainable development.

In some government-run institutions, the pay gap between the highest-paid officials and the lowest-paid workers has reportedly reached a ratio of 100:1. Senior officials, including CEOs of state-owned enterprises (SOEs), receive lucrative compensation packages comprising high basic salaries, perks, bonuses and allowances. In contrast, lower-tier employees such as clerks and support staff often earn wages close to the minimum threshold, which remains inadequate given rising inflation and the increasing cost of living. For instance, a top official in an SOE or regulatory authority may earn Rs3-4 million per month, while a lower-grade employee in the same organisation earns around Rs37,000 to Rs42,000.

In the private sector, the disparity is even more pronounced, with CEOs and executives earning 200-300 times more than junior employees. Some bank CEOs, for example, receive salaries of Rs10-20 million per month, while entry-level staff such as tellers and clerks earn between Rs30,000 and Rs50,000. Senior executives in multinational corporations (MNCs) operating in Pakistan enjoy salaries comparable to those in developed economies, whereas junior staff members remain significantly underpaid.

Industrial labourers, particularly in the garment sector, earn close to the legal minimum wage, while business owners and executives in leading textile firms make millions. This stark contrast leaves lower-level employees feeling undervalued, which negatively affects productivity and increases staff turnover.

When low-tier workers struggle to afford basic necessities while executives lead lavish lifestyles, resentment grows. The wealthy accumulate more wealth, while the poor remain trapped in low-wage jobs with limited opportunities for upward mobility. Historically, pay disparities have fuelled labour movements and strikes, particularly in the textile and banking sectors.

Severe income inequality also weakens domestic demand. When the majority of workers earn barely enough to survive, discretionary spending declines, reducing demand for goods and services and slowing business growth. If a small elite controls most of the wealth, investment tends to focus on luxury markets rather than broad-based economic expansion. Small and medium-sized enterprises (SMEs) suffer when workers lack purchasing power to buy locally produced goods. In the manufacturing sector, many employees earn minimum wage, restricting their contribution to domestic consumption-driven growth.

Pakistan also faces a persistent brain drain, as skilled professionals seek higher salaries abroad. When workers in industries such as IT find significantly better salaries in the Middle East, Europe or North America, they migrate, worsening the country’s talent shortage. Employers struggle to retain skilled professionals when they cannot offer competitive pay to mid-level staff. For example, IT professionals frequently leave Pakistan for better-paid opportunities in Dubai, Canada, or the US.

Moreover, inadequate wages drive workers towards informal, undocumented jobs, reducing tax revenues. Underpaid employees in customs, law enforcement and tax departments may resort to bribes to supplement their income, further weakening governance. Employees who see vast executive salaries but experience stagnant wages themselves become demotivated, reducing productivity. High turnover rates force companies to spend more on recruitment and training, increasing operational costs.

To mitigate the negative effects of pay inequality, the government should introduce progressive taxation on excessive executive salaries, using the revenue to fund worker benefits. Companies should be encouraged to distribute a portion of their profits to all employees rather than solely rewarding top executives. Workers must have the right to collectively negotiate fair wages and benefits. Businesses should invest in upskilling their workforce to justify higher pay.

The government must implement wage reforms aimed at reducing extreme salary disparities in state-owned enterprises by capping executive salaries. Without decisive action, Pakistan risks deepening economic inequalities, stifling growth and intensifying social unrest.