Effect of Non-Farm Income on Income Inequality in Pakistan

The portion of farm households' income outside the farm, such as non-farm salaries and wages, pensions, and interest income, is referred to as non-farm income. In Pakistan, non-farm profit is an essential source of income. "income inequality" describes the inequitable income distribution between people or families in a community or economy. Income inequality is a significant issue worldwide, including in Pakistan. This research estimated the effect of non-farm income on rural and urban areas and analyzed the relationship between non-farm income and income inequality within households. Secondary data from the Pakistan Social and Living Standard Measurement Survey Household data (2019-20) was used. Multinomial Logistic Regression was applied to the data, and income inequality was calculated using the Gini coefficient. The population was divided into quartiles to measure income distribution. The research found that non-farm income raises income inequality, while farm income is an income equalizer among the population. The reason behind this is that a major portion of income or wealth is accessed by the upper society, with only a minor portion reaching the lower levels of the population. Specifically, the Gini coefficient for non-farm income was 0.65, indicating higher inequality, compared to 0.45 for farm income. In urban areas, non-farm income provides large opportunities, while rural areas predominantly depend on the farm sector. There is a need to raise awareness about the non-farm sector in rural sector. The study's policy implications include the following: In order to improve agricultural households' income and low-income disparity, non-farm income activities have to be promoted. The study also suggests that Inequalities within rural communities should be addressed as part of an equal development strategy, in addition to the rural-urban gap.