The findings from the Labor Force Survey (LFS) of 2017-18 have been released recently by the Pakistan Bureau of Statistics (PBS). The last such survey was for 2014-15. There is need to appreciate the speed with which a survey of 43,472 households was undertaken by PBS and the information collected subjected to prompt analysis and the results released all within one year. Hopefully, this important survey will henceforth be undertaken every year especially since the PTI government has the target of creating ten million jobs in five years and there is need to monitor the process of achievement of this target.
The key magnitudes revealed by the LFS are, first, that the labor force size is 65.5 million in 2017-18. Second, the number of employed is estimated as 61.8 million, implying that the number of unemployed is 3.7 million. As such, the unemployment rate is 5.7 percent. Over the last five year period, 12.7 million jobs have been created since 2012-13, during the tenure of the PML (N) government. Clearly, the PTI has a very ambitious target of creating new jobs, which is 57 percent higher than the number achieved in the last five years.
Unfortunately, there is a problem of understatement of the growth rate of the labor force by PBS between 2012-13 and 2014-15. It is shown as only 1.1 percent. Consequently, the five year growth rate of the labor force is only 1.8 percent. This is significantly below the population growth rate of 2.4 percent and the historical growth rate of the labor force from 2007-08 to 2012-13 of 2.9 percent, reflecting the 'youth bulge' and the resulting fast expansion in the labour force in Pakistan.
The PBS was apparently under strong pressure from the previous government to present a better picture of employment in the economy than was really the case. This was achieved by reducing the size of the labor force and keeping the number employed as unchanged such that the unemployment rate was reduced.
Therefore, appropriate adjustment for the growth of the labor force leads to an estimate of the unemployment rate in 2014-15 of 8.7 percent as compared to the reported magnitude of 5.9 percent. This indicates that the employment situation had actually worsened in 2014-15 and not improved as reported. Similarly, the adjusted unemployment rate in 2017-18 is 8.4 percent. Over the last decade, labor market conditions have clearly deteriorated in the face of a relatively low GDP growth rate. The unemployment rate in 2007-08 was significantly lower at 5.2 percent following three years of rapid growth.
Based on the adjustment for the understatement of the unemployment rate a number of important findings can be highlighted. First, there is enormous variation in the rate of unemployment among workers with different levels of education. Contrary perhaps to expectations, the unemployment rate is much higher for educated workers. Illiterate workers have an unemployment rate of 5 percent as compared to over 20 percent for workers with degree or post-graduate qualifications. This is truly a tragic waste of the limited human capital in the country.
The other worrying developments in the employment situation are, first, low rate of absorption of youth in the labor force. Currently, there are over 6 million 'idle' male youth in the country. They are neither undergoing education nor in the labor force. This large number of 'idle' youth may have a stronger proclivity towards religious extremism or crime.
Second, the unemployment rate is the highest in Khyber-Pakhtunkhwa at over 10 percent and explains the high rate of out-migration from the Province. Third, female members of the labor force also experience a higher unemployment rate approaching 12 percent, probably reflecting gender discrimination in the labor market.
There have been significant changes in the sectoral distribution of employment between 2012-13 and 2017-18. The share of agriculture has fallen from 44 percent to 39 percent, while that of industry has increased from 22 percent to 24 percent and that of the service sector from 34 percent to 37 percent. There is strong evidence of greater share of the informal sectors in employment. The rate of increase in jobs in sectors like wholesale and retail trade, transport, construction and private services has been noticeably faster.
There has also been degree of equalization in wages and a reduction in the skill premium due to the lower rate of absorption of educated workers. The growth rate of real remuneration of professionals between 2012-13 and 2017-18 is estimated at 3 percent as compared to 5 percent in the case of workers in elementary occupations. Clearly, this is a major factor which has reduced income inequality among households in the country in recent years.
The other important relationship is between GDP growth and the rate of job creation. Between 2012-13 and 2017-18 the cumulative growth in the size of the economy has been 26 percent. The corresponding growth in employment is 10 percent. Therefore, for every 1 percent growth in the GDP the increase in employment is close to 0.4 percent. This is a relatively low response of employment to economic growth. However, it does highlight that the labor productivity increase is faster. Over the last decade, the productivity contribution to a 1 percent increase in the GDP was faster at 0.6 percent as compared to employment.
The employment response to growth is important to quantify because it highlights the predicament that the country is in. There has been a visible slowdown in the economy during the current financial year. An optimistic expectation is that the growth rate of the economy will be close to 3.5 percent. This implies that the growth rate in the number of jobs is unlikely to exceed 1.4 percent, equivalent to additional employment of 864,000. However, with an increase in the labor force of 1,518,000 there will be a rise in number unemployed of over 600,000 in 2018-19. Consequently, the unemployment rate could rise to over 9 percent.
Given the need for stabilization of the economy over the next two years, especially in the presence of a Fund Program, there is need to recognize that the PTI government target of creating two million jobs annually will probably remain well beyond reach. Instead it will be a better strategy to take special initiatives for creating and targeting more employment opportunities for the educated, young and female workers.
(The writer is Professor at BNU and former Federal Minister)
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