Labour, Employment, Skills and Development

Labour, employment, skills and development

By Nasir Hafeez

The diminishing role of the public sector in employment generation and the limited capacity of the formal private sector to absorb the growing labour force in developing countries have caused a large number of workers to join the informal sector which is comprised of a wide array of activities.

The formal sector felt threatened because of the fact that the informal sector was not obliged to pay taxes or any legal formalities. However, the growing rural population and the limited absorptive capacity of the agriculture and non-farm sectors in rural areas has forced people to leave rural areas to go to bigger cities in search of jobs.

The ill-organized informal sector is unable to come up with effective solutions; rather depopulation has caused a serious decline in local economic vitality in rural areas.

For example, the share of the informal sector in urban employment was estimated at 72 per cent in Indonesia in 1986, 57 per cent in Myanmar in 1983, 79 per cent in Pakistan in 1990 and 62 per cent in Thailand in 1988. Estimates of the informal sector employment in selected large cities in the region also show considerable growth of the sector over time. Apart from limitations of data availability, everybody can feel the tremendous growth of the informal sector in recent years.

Yet another factor that has impacted the employment situation in the country is globalization. The forces of global integration have gained momentum in the 1990s and many businesses felt threatened as a result of trade liberalization and tariff rationalization, which has swept through the developing world.

Businesses started making necessary adjustments in cost of doing business by acquiring most modern technology. Consequently, labour productivity increased in every branch of industry and commerce, which means replacement of labour with technology.

However, even after substantial shrinkage of the labour force, in many organizations, labour productivity remains a fraction of what it is in competing countries. Hence, there has been no increase in employment in organized industry and commerce. This implies that globalization offers little or no scope for employment growth in the organized sector in developing countries like Pakistan but is rather taxing.

As for the local scenario, many people are sceptical of the government claim that unemployment rate in the country has declined from 8.3 per cent in 2002-03 to 6.5 per cent in 2005-06. They view the recent higher growth as "jobless and joyless growth".

The government’s assertion is right that higher economic growth has given rise to subsequent decline in unemployment. Although the government has come up with novel ideas of employment generation, they have mostly been left halfway.

The official recognition of the presence of a skill gap brought focus on the issue. However, progress on this count is agonizingly slow. The ailing vocational training sector is still eating resources without any utility. Skill development is a very important component of employment generating 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.

Employer-led Skill Development Councils developed by Ministry of Labour Manpower and Overseas Pakistanis, have been established in all provinces to identify needs of geographical area, priorities them on market demand and to facilitate the training of workers through training providers in public and private sectors. These councils are aimed at the diversified training needs of the industrial and commercial sectors. However, this initiative lacks needed commitment and dedication both on the part of employers and the government. It is only doing number’s game by issuing proxy lists of trainees.

Technical and vocational training enhances the employability of the work force. The National Technical Education and Vocational Training Authority (NTEVTA), has been established to develop infrastructure of technical education at district level. However, it is yet to make any impression and is passing through red tape. Provincial Directorates of Manpower and Training are also helping in building skills at all levels under various limitations. Yet the need for skills development in accordance to the needs of modern industry remained tarnished. In this background it is not amazing that Pakistan lags behind many developing countries in reaping the fruits of globalization. In years to come, outsourcing would be the order of the day and presence of pools of skilled manpower will yield enormous benefits for the country. Pakistan needs only large pools of skilled manpower rather than so-called politically motivated rozgar schemes without any benefit to the economy either in the short-run or in the long-run.

It is hard to develop labour intensive technologies to absorb labour but we can enhance productivity in the agriculture sector. More than 50 per cent people in the rural are earn their livelihood from non-farming sectors. So our focus should be on generating non-farm employment opportunities in the rural areas. Provision of micro-finances and access to the market through institutional setup, the government could help grooming of new entrepreneur class. Attracting foreign direct investment (FDI) is also a viable option but for this we need a large pool of skilled labour force which is unfortunately not available at the moment.

The first priority of the government should be to create non-farm employment opportunities in the rural areas to stop migration from rural to urban areas through both imparting skills and promoting SME sector in rural areas. A Business Support Fund was proposed by the government while presenting the Federal Budget 2005-06 to promote SME sector but the idea was either shelved or has not been implemented. This was a good idea and should have seen the day light.

The governments in developing world has made blunder by ignoring agriculture, and the non-formal sector which were instrumental in meeting the growing employment demands of the country. Economists believe that the Input Capital-Output Ratio (ICOR) is much lower in the agriculture than in other sectors of the economy which means that for a given investment agriculture is the best bet for maximizing growth and creating employment opportunities as well. That has reinforced the view that agriculture and cottage industries alone can maximize growth and employment in the developing countries. Pakistan should look at things from this perspective also to create more employment opportunities in the rural areas.

The employment problem is instrumental because many social evils are culmination of this problem. We have acknowledgement from almost all tiers of power that unscrupulous elements use army of unemployed youth for their nefarious designs. It means law and order which confronts our investment climate and is also a product of unemployment. Another important development of recent times is the mushroom growth of private universities where degree is for sale for all aspirants. Today we have many times higher number of graduates and post-graduates than five years ago but number of advertisement that appears in the national press for employment in public and private sector is far below the level of ten years ago. If one goes through the archive of newspapers ten years ago and compare it with a holiday newspaper of today, it will emerge that the number of employment opportunities have shrank drastically.

Pakistan in the current economic situation needs a comprehensive employment strategy which is in full conformity with most modern growing economy. The official data itself admits the fact that unemployment has risen considerably since second half of the 1990s. We could not follow any poverty alleviation strategy without a credible employment strategy. It is a positive aspect that there is a wide recognition even in the official circles regarding the intricacies of unemployment menace and its likely impact on socio-economic conditions of the country. The government should devise policies to target the sectors which are labour intensive but should not undermine the importance of most modern sectors of the economy.