Riaz Haq, probably the most knowledgeable commentator around on the Pak economic scene, has delivered a fantastically important post about Pakistan.
A 2012 study of 22 nations conducted by Prof Miles Corak for the Organization for Economic Cooperation and Development (OECD) has found income heritability to be greater in the United States, the United Kingdom, Italy, China and 5 other countries than in Pakistan.
The study’s findings, presented by the author in testimony to the US Senate Finance Committee on July 6, 2012, rely on the computation of “inter-generational earnings elasticity” which the author explains as follows:
“(It) is the percentage difference in earnings in the child’s generation associated with the percentage difference in the parental generation. For example, an intergenerational elasticity in earnings of 0.6 tells us that if one father makes 100% more than another then the son of the high income father will, as an adult, earn 60% more than the son of the relatively lower income father. An elasticity of 0.2 says this 100% difference between the fathers would only lead to a 20% difference between the sons. A lower elasticity means a society with more mobility.”
Intergenerational Mobility in Pakistan:
Corak calculates that the intergenerational earnings elasticity in Pakistan is 0.46, the same as in Switzerland. It means that a difference of 100% between the incomes of a rich father and a poor father is reduced to 46% difference between their sons’ incomes. Among the 22 countries studied, Peru, China and Brazil have the lowest economic mobility with inter-generational elasticity of 0.67, 0.60 and 0.58 respectively. The highest economic mobility is offered by Denmark (0.15), Norway (0.17) and Finland (0.18).
The author also looked at Gini coefficient of each country and found reasonably good correlation between Gini and intergenerational income elasticity.
In addition to Corak, there are other reports which confirm that Pakistan has continued to offer significant upward economic and social mobility to its citizens over the last two decades. Since 1990, Pakistan’s middle class had expanded by 36.5% and India’s by only 12.8%, according to an ADB report titled “Asia’s Emerging Middle Class: Past, Present And Future”.
More evidence of upward mobility is offered by recent Euromonitor market research indicating that Pakistanis are seeing rising disposable incomes. It says that there were 1.8 million Pakistani households (7.55% of all households) and 7.9 million Indian households (3.61% of all households) in 2009 with disposable incomes of $10,001 or more. This translates into 282% increase (vs 232% in India) from 1995-2009 in households with disposable incomes of $10,001 or more. Consumer spending in Pakistan has increased at a 26 percent average pace the past three years, compared with 7.7 percent for Asia, according to Bloomberg.