The unemployment challenge

Mohsin Iqbal in a letter to the editor of Business Recorder had asked me to write about 'the unemployment challenge'. This article is in response to the request.
Source of information
The Pakistan Bureau of Statistics (PBS) released sometime ago the findings of the latest Labor Force Survey (LFS) of 2014-15. The Bureau must be complimented for undertaking this Survey, more or less, annually and publishing the findings quickly. This enables timely monitoring of the employment situation in country. Thirty three such surveys have been carried out by PBS. The coverage is nation-wide. The sample size was 42,108 households in 2014-15 survey.
The major findings from the labor force surveys are as follows:
The rate of expansion in the labor force survey has contracted sharply
Between 2012-13 and 2014-15 the annual number of entrants into the labour force was approximately 650,000. This is in sharp contrast to double the rate of increase annually of 1.3 million between 2007-08 and 2012-13. This indicates that conditions in the labour market have worsened and raises doubts about the claim that the economy has grown significantly faster in the first two years of the present government. The evidence points to a growing phenomenon of 'discouraged workers'. Many individuals have given up searching for jobs after failure over a long period of time.
Today, there are close to 62 million workers in the labor force of Pakistan. One positive development is the high and growing share of young workers, aged 15-34 years. Their share has now exceeded 50%. 76% of the labor force is male and 24% female. 70% of the workers are located in rural areas and the remainder, 30%, in urban areas.
The rate of job creation has plummeted
During the period, 2007-08 to 2012-13, the number of jobs created annually was over 1.1 million. This has fallen by 37% to 705,000 annually in 2013-14 and 2014-15. Bulk of the absorption is in the informal sector, where working conditions are poor.
Numerous factors have contributed to less job creation. First, there is the decline in exports, especially of textiles and by labor-intensive SMEs. Second, construction activity has been slack due to big cut backs in development spending and low growth of investment in housing. Third, the public sector is not expanding 'job opportunities' especially in the presence of loss-making state enterprises/utilities and slow expansion in coverage of basic services. For example, the number of teachers in the public school system has increased by only 1% annually.
The unemployment rate has risen to over 8%
PBS estimates the unemployment rate at close to 6% in 2014-15. It is actually above 8% of allowance is made for 'discouraged' workers. The urban unemployment rate is higher at 11% compared to 7% in the rural areas.
There are 2.4 million educated workers with bad employment prospects
A worrying feature of the current employment situation is the extremely high unemployment rate of 20% of workers with either degree or post-graduate qualifications. Effectively, one in five such workers is unemployed. Over a decade ago, their unemployment rate was only 5%.
The major reason for this failure is the rapid growth in annual output of colleges and universities of over 12%, due to the vast expansion in the number of such institutions since 2000. Clearly, given the rate of growth and stage of development of the economy, it is unable to create enough jobs for graduates. The emphasis ought to shift to secondary, vocational and technical education. Fortunately, this is beginning to happen, especially in Punjab.
There are 4 million 'idle' male youth
Another disturbing feature is the presence of almost four million 'idle' males, aged between 15 and 29 years. These individuals are neither undergoing education nor searching for a job. They are perhaps more vulnerable to crime and/or militancy. It is unfortunate that the Youth Employment Programs launched by the Government have not been so successful in inducing productive engagement in labour force.
A large-scale Youth Employment Guarantee Scheme of up to 100 days a year is worthy of consideration. Also, as highlighted above, there is need for up scaling of free public-private vocational and technical training programmes, especially for youth with limited years of schooling.
Rising participation but continuing discrimination against women
An important development is the trend towards increased labor force participation rate of women in Pakistan, which is currently one of the lowest in the world. It has risen significantly after 2008-09 by almost three percentage points, to reach 22%. Meanwhile, the labor force participation rate of males has actually fallen by 1.5 percentage points.
However, there is strong gender discrimination in the labour market. Over one in four educated female workers is without a job. For the same type of occupation, the wages for women are on the average 40% less than for male workers. The overall unemployment rate for female workers is almost 13%.
Positive trend of decline in child workers
A significant positive trend is the decline in the number of child workers by over 14% since 2012-13. Focus on this problem has increased following the granting of GSP plus status to Pakistan by the EU, conditional on adherence to 27 international conventions. Eight of these conventions relate directly to labor. The government of Punjab, in particular, is making efforts to reduce child and bonded labor in brick kilns. A special incentive is being offered for instead sending the child to school.
The trend in real wages
What is happening to real wages? Between 2008-09 and 2014-15, real wages have increased for technicians and professionals, while that for unskilled workers have fallen. The skill premium is rising in the economy.
It is indeed unfortunate that less than 40% of workers earn the mandatory minimum wage. There is need for stricter enforcement of this provision. The tragedy is that the trade union movement of Pakistan which had taken off in the decade of the 70s, was crushed in the 80s. Today, there is little collective bargaining, with less than 2% membership of industrial workers in trade unions.
Overall, there are numerous employment challenges that Pakistan faces. These include declining labor force participation of males and failure in creating new jobs, especially for the young, educated and female workers. The informal sector continues to act as the residual employer, without 'decent' working conditions or 'living' wages. Further, the trade union movement is, more or less, non-existent.
It is clear that the economy has to grow by at least 6% annually if employment is to be enhanced substantially and for real wages to increase. Perhaps the most formidable challenge for the country today is to productively absorb its young and rapidly growing potential labor force.
(The writer is Professor Emeritus and a former Federal Minister)