Growth and jobs

There is a close nexus between economic growth and job creation. When an economy expands, it automatically creates new employment opportunities. However, it also happens that economic growth sometimes adversely affects unemployment or the increase in employment may lag considerably behind output growth. This phenomenon is called jobless growth. Pakistan is among those countries which have for years seen jobless growth.

As per the Pakistan Economic Survey, during the 1980s, 6.5% average economic growth was registered. Out of a total labour force of 11.6 million, 11.2 million were employed (including those underemployed) while only 0.4 million were unemployed. The unemployment rate was a low 1.4%. Thus, the 1980s was a decade of high growth but low unemployment. During the 1990s, the labour force increased nearly three times to 35.1 million. Out of this, 33.1 million were employed while nearly 2 million were unemployed, resulting in a high 5.7% unemployment rate. The 1990s also saw average economic growth slowing down to 4.6%. However, the contraction of 1.9 percentage points in growth rate was far below the 4.3-percentage-point rise in unemployment rate during the 1990s - a visible sign of jobless growth.

The next decade of 2000s saw the average economic growth marginally go up to 4.7%. With a 45.5 million labour force, the unemployment rate rose considerably to 6.8%. Again, this is an index of jobless growth as despite a higher growth rate, the employment level did not go up. From 3.6% in 2010-11, the economic growth rate has been on the rise, except for 2012-13 when it marginally fell, reaching 5.4% in 2016-17. For the current financial year, the growth rate is projected to increase to 5.8%. However, the higher economic growth rate has not been accompanied by a proportionate fall in unemployment rate.

From 6% in 2010-11, the unemployment rate marginally fell to 5.9% in 2014-15, the last year for which Pakistan Bureau of Statistics data is available. However, according to estimates of the World Bank, the unemployment rate remained stuck at 5.9% in 2016 and 2017. Thus, it can be safely presumed that 2016-17 closed with 5.9% unemployment rate. The data strongly suggests that Pakistan has been has been faced with the phenomenon of jobless growth. The increase in GDP growth has been accompanied by either a higher unemployment rate or a less than proportional fall in unemployment rate. At times, the contraction in economic growth is accompanied by a more than proportional increase in unemployment rate.

A major cause of jobless growth is economic dualism. Like most other developing economies, Pakistan is subject to double dualism. One is the familiar rural- urban or agriculture- industry dualism.,But dualism also exists within the urban sector, which consists of two sub-sectors. There is an organised industrial sector, which is relatively advanced in its techniques of production and employs labour with relatively high productivity. This sector has been the major beneficiary of government policies.There is also an informal sub-sector, which consists mainly of self-employed and small-scale craftsmen, such as hawkers, shopkeepers and auto mechanics who have low productivity. Both the agriculture sector and the informal urban sub-sector are labour-intensive while the organised urban sub-sector is relatively capital-intensive.

It is important to note here that economic development in Pakistan has entailed transfer of resources from agriculture to the urban organised sector or from a labour-intensive to a capitalintensive sector. Government policies have also encouraged substitution of labour with capital through low interest rates. As a result, the sub-sector has been inclined towards use of relatively cheap capital at the expense of labour.The trickle-down growth strategy that Pakistan has adopted has resulted in a widening of income disparities. This does not bode well for job creation as there is meagre investment in human capital development and thus labour skills and productivity do not improve commensurate with the requirements of the industrial sector.