Employment has not kept pace with GDP growth

By Zafar-ul-Hassan Almas

Although most macro-economic indicators in Pakistan have improved in recent years, employment generation has notkept pace. Some critics describe this as a classic example of "jobless and joyless growth." The greatest challenge for Shaukat Aziz as prime minister, therefore, is to tackle the problem of unemployment.



Pakistan has been passing through a process of structural adjustment since 1988. In this structural adjustment scenario, massive retrenchments have taken place in the name of "golden-handshake" schemes and downsizing. The privatisation of state-owned enterprises, which began in 1991, has seen the winding up of many industries and public sector units. As a result of the privatisation of 134 public sector entities, massive retrenchments has taken place.

Under the structural adjustment programme, the prices of public utilities were rationalised and utility charges have increased many fold. The World Bank and the International Monetary Fund (IMF) have admitted that higher energy costs and the elimination of tax exemptions have substantially increased cost of doing business in Pakistan, making many industries uncompetitive. Many industries have closed down. Recongnising the gravity of the problem, the government formed the CIRC to revive sick units. These developments have caused immense pressure on the job market. At the same time, jobs in the private and public sectors have not been created at a pace commensurate with population growth and increases in the number of people entering the job market.

Globalisation is another factor that has impacted adversely on the employment situation in the country. The forces of global integration gained momentum in the 1990s, and many businesses felt threatened as a result of trade liberalisation and tariff rationalisation policies that swept through the developing world.

Pakistani businesses, which had long been accustomed to high degrees of tariff protection, felt the pinch and started making necessary adjustments in the cost of doing business by acquiring modern technology. Consequently, labour productivity has increased in most branches of industry and commerce, which means the replacement of labour by technology.

But even after a substantial shrinkage in the labour force, labour productivity in many businesses remains a fraction of what it is in competing countries. Hence, there has been no increase in employment in organised industry and commerce. This suggests that globalisation offers little scope, if any, for employment growth in the organised sector in developing countries like Pakistan.

On the other hand, governments in developing world have made a blunder by ignoring agriculture and the non-formal sector of the economy, which were instrumental in meeting the growing employment demands in the countries concerned.

In the name of the rationalisation of subsidies, governments have made it virtually impossible for farmers to earn profits. As a result, living conditions for farmers in the rural areas have deteriorated to a great extent. Frustration over this situation has added to the menace of urbanisation and shanty towns in the suburbs of cities that grew by leaps and bounds in the 1990s. Tremendous growth in the numbers of so-called "katchi abadis" has created multifaceted problems - the most prominent being unemployment.

Economists believe that the Input Capital-Output Ratio (ICOR) is much lower in the agricultural sector than in other sectors of the economy. This means that for a given level of investment, agriculture is the best bet for maximising GDP growth and creating employment opportunities. This has reinforced the view that agriculture and small- and medium-size enterprises (SMEs) alone can maximise growth and employment in developing countries.

Five years ago, when, under the Shaukat Aziz’s stewardship as finance minister, four drivers of economy were announced, it was a welcome development that agriculture and the SME sector were two of the four drivers. This gave strength to the idea that the government had diagnosed the problem correctly. However, after the passage of five years, these two areas are the greatest failures.

Today, agriculture is the victim of rising input prices and efficiency deterioration in almost every institution responsible for agriculture. The charging of exorbitant profits by tractor manufacturers has virtually killed the farm-mechanisation drive. Access to credit remains a big problem for farmers, especially small farmers that comprise the majority of farmers.

The Small and Medium Enterprises Development Authority (SMEDA) has done little to promote the growth of SMEs. SMEDA is staffed by mostly western-educated highly paid executives, many of whom seem to have little knowledge of field conditions and ground realities. SMEDA is rich in ideas that are not practicable in our environment.

Unemployment is also a key factor in the deterioration in the law and order situation. Another important recent development is the mushroom growth of private universities, in many of which degrees are for sale. Today, we have many times the number of graduates and post-graduates than we did five years ago. Yet the numbers of advertisements for public and private sector jobs appearing in the national press is far below the level of ten years ago. This suggests that the numbers of employment opportunities in the country have shrank drastically. This is indeed a very alarming situation. As prime minister, Aziz has inherited an economy that is much better shape than it was five years ago when he became finance minister. But it is also a fact that the unemployment problem is more acute today than it was in 1999. As finance minister, Aziz faced many challenges on the economic front. As prime minister, however, his biggest challenge on economic front will be to formulate and implement policies that create more jobs.

Higher GDP growth is not a panacea for all ills, but Pakistan needs job oriented and joyful growth. Today, many educated young Pakistanis hope that Aziz will prove to be a Pakistani version of Mahathir Muhammad who will be able to create windows of opportunity for them.

In his last budget speech as finance minister, Aziz talked about the skills gap in the economy and proposed various measures to develop skills. But the ailing vocational training sector continues to consume resources without showing any meaningful results on the ground. Skill development is a very important component of job-creation strategy. Another important component is career planning, which is missing even in our public and corporate sector. The government should encourage career counseling and career planning at all levels. This will add to productivity gains in the economy.

Pakistan’s current economic situation needs a comprehensive employment strategy, which is in full conformity with the needs of a modern, growing economy. But official data shows that unemployment has risen considerably since the second half of the 1990s. We cannot have meaningful poverty alleviation without a credible employment strategy.

The govt needs to devise policies to target the sectors that are labour intensive. But this, of course, should not be at the cost of the more modern sectors of the economy.