Pakistan’s recent macroeconomic stabilisation has not translated into relief for the working households. While inflation has eased, the cumulative rise in food, housing, transport and energy costs has permanently shifted the cost of living upward.
For millions of wage-earners, especially those at the lower end of the labour market, earnings have failed to keep pace. The result is a widening disconnect between what workers are paid and what it actually costs to live with dignity. This disconnect is no longer marginal. Evidence discussed across policy and business forums suggests that, in many parts of the country, the gap between the minimum wage and a locally defined living wage is in the range of 60 to 70 percent. That magnitude matters. It means that even full-time work, when paid at the legal minimum, often does not secure food, shelter, healthcare and education for a family.
A living wage is frequently misunderstood as a single national number. It is not. A living wage is inherently location-specific, shaped by housing costs, transport needs, food prices and access to public services. What constitutes a decent living in central Lahore or Karachi is not the same as in a smaller town or rural district.
Treating wages as location-agnostic has been one of the core weaknesses of Pakistan’s current wage-setting approach. Minimum wages are notified administratively, often without transparent use of household expenditure data, and are applied uniformly despite wide variation in living costs. This has produced a statutory floor that looks adequate on paper but fails in practice.
Over the past two years, the Sustainable Development Policy Institute has tried to move this debate from slogans to evidence. Rather than producing yet another abstract report, the SDPI undertook a structured desk review of existing wage studies, labour laws, international frameworks and corporate practices, and complemented this with extensive consultations across Pakistan. Roundtables and dialogue sessions were held with employers, trade unions, policymakers, Labour Departments, Social Security Institutions, development partners and civil society organisations in major urban centres and selected regions.
The objective was not to advocate a single number, but to understand how a living wage could be defined, phased and implemented within Pakistan’s economic and institutional realities.
Several clear findings emerged from this process. First, there is broad agreement across stakeholders that the current wage structure is misaligned with living costs. Even among employers, there was little dispute that minimum wages lag far behind household needs, particularly in urban areas. Second, enforcement remains a structural failure. A large share of Pakistan’s workforce operates in informal or semi-formal arrangements where even the minimum wage is not paid consistently. Weak inspection systems, limited worker awareness and low penalties for non-compliance all contribute to this outcome.
Third, the idea that higher wages automatically undermine business viability does not hold up well against evidence. Employers who have experimented with better pay reported gains in productivity, retention and workforce stability that offset part of the cost. The experience of a company featured prominently in these discussions. A report by the company and its partners states that the company committed to ensuring a living wage for all workers directly linked to its operations, including contracted sales staff and merchandisers.
Internal assessments shared during policy dialogues indicate improvements in worker motivation, job satisfaction and outlet performance following wage adjustments. This mirrors the global experience, where living wage initiatives have been associated with lower turnover and more resilient supply chains. The point is not that every firm can replicate this overnight, but that the business case for better wages is neither hypothetical nor limited to high-income countries.
International experience reinforces this conclusion. In Europe, governments have moved towards wage-setting frameworks explicitly linked to adequacy and living standards rather than subsistence. A report by the European Commission notes that adequate minimum wages, supported by collective bargaining, are now seen as tools for social cohesion and demand stability. In Asia, countries such as Vietnam have relied on tripartite wage councils to gradually align statutory wages with living costs, while maintaining employment growth.
In India, policymakers, with technical support from international institutions, have begun shifting from a fragmented minimum wage regime towards a more coherent framework that explicitly references living needs. These examples show that aligning wages with living costs is not radical; it is increasingly mainstream practice.
A recurring concern in Pakistan is whether living wages would fuel inflation and create a vicious cycle. The evidence does not support this fear in a simplistic form. When wage increases are targeted at low-income workers, the additional income largely goes into consumption of essentials. This can stimulate local demand without triggering runaway inflation, particularly when increases are phased and aligned with productivity and supply conditions.
Reports suggest that the inflationary impact of living wages is modest compared to the social and economic costs of suppressing incomes, such as poor health, low productivity and reliance on public welfare.
What, then, is the way forward? The first step is to abandon the idea of an immediate, uniform national living wage. Pilot approaches are essential. Sector- and area-specific pilots, particularly in formal and export-oriented industries, can generate local evidence on costs, benefits and adjustment paths. These pilots should be designed transparently, with participation from employers, workers and provincial governments, and evaluated independently. Once credible evidence is available, scaling up becomes a policy choice rather than a leap of faith.
Institutional strengthening must accompany wage reform. Provincial bodies, such as Workers Welfare Boards already exist to reduce workers’ cost of living through healthcare, social protection and welfare benefits. Reports by the SDPI suggest that expanding the coverage, governance quality and service scope of these institutions can materially reduce household vulnerability without placing the entire burden on wages alone. A living wage, in practice, should be seen as a package that combines fair pay with access to essential services.
Enforcement remains the hardest challenge. The discussions in Islamabad made a strong case for moving away from a purely punitive model. Given the scale of informality, a carrot-based approach is more realistic. Incentives such as preferential access to public procurement, tax relief, concessional finance or public recognition for compliant firms can shift behaviour faster than inspections alone. District-level vigilance committees, already used in other labour contexts, can be adapted to monitor wage practices with local legitimacy. Over time, once norms are established, stronger legal enforcement becomes more feasible.
The living wage debate is also inseparable from Pakistan’s social contract. Paying wages that fail to meet basic needs undermines trust in markets and institutions. It disproportionately affects women, who are overrepresented in low-paid, informal and home-based work, and whose unpaid care burdens rise when incomes are inadequate. Applying a gender lens to living wage policies is therefore not optional. It is central to their effectiveness.
It is important to state plainly that a living wage is not charity. It is a constitutional and economic question. Pakistan’s legal framework commits the state to improving living standards and reducing inequality. A labour market in which full-time work does not secure a basic livelihood is inconsistent with that commitment. The evidence gathered through SDPI’s desk review and nationwide consultations suggests that the question is no longer whether Pakistan can afford to think about living wages, but whether it can afford not to. The task now is to translate dialogue into pilot projects; pilots into policy; and policy into institutions that work.
The writer, an associate research fellow at the Sustainable Development Policy Institute, can be reached at ahad@sdpi.org. The article doesn’t necessarily represent the views of the organisation
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