Unraveling the Enigma; Exploring Factors Influencing the Regional Wage Disparity in Pakistan

Abstract

This paper endeavors to study the hitherto obscured question of possible inter-divisional differences in the set of parameters of the earnings gap between urban and rural workers in South Punjab, Pakistan. Empirical estimates reveal that gender, human capital, work-related variables and family characteristics are significant determinants of earning differential by location. Decomposition results show that regional dummies are the largest and family characteristics are the smallest contributors to explain earning differential between workers of urban and rural area. The extent of discrimination in South Punjab is highly significant as 54.5657 percent discrimination exists by location. Comparative analysis of earning differential by location at disaggregate level shows that total log earning gap in Multan division is 0.2202 (8041.87 rupees), in Bahawalpur division is 0.20 (7088.71 rupees) and in DG Khan division is 0.1244 (4044.21 rupees). It is evident that policy markers cannot afford to ignore the dimension of the inter-regional differences in formulating policies to combat overall earning gaps in Pakistan. So, region specific policies should be targeted specifically to achieve the desired goals given the labor market conditions and cultural differences across rural and urban areas and across each division of Southern Punjab, Pakistan.