INCOME POLARIZATION IN PAKISTAN Measurement and Decomposition

Polarization in context of income distribution refers to the decline of middle class. The empirical analysis of polarization is quite unexplored area in Pakistan. The present paper measures polarization for Pakistan and its rural and urban segments and the novel concept of time-decomposition of polarization has also been applied for the first time in Pakistan for the three latest survey years of 1998-99, 2001-02 and 2004-05. The Bossert-Schworm measure (2006) of polarization has been used whereas the units of measurement include both the aggregate household as well as per adult equivalent household. It has been found that in general, throughout the period of analysis, polarization has followed a declining trend in Pakistan and its rural-urban areas. The time-decomposition of polarization has suggested that the decreasing mean incomes relative to the median of the higher income groups and the decreasing within group inequalities of both higher and lower income groups are among the major factors contributing to the change in polarization overtime in Pakistan.