High growth in manufacturing didn’t ensure job creation

When it comes to employment growth in manufacturing, the picture is not as bright as value-added growth. The annual rate of growth of employment in the recent phase was 1.23 per cent, much less than the 6.24 per cent annual employment growth during the earlier phase

The annual rate of growth of employment in Bangladesh has slowed, impacting wages and labour income. There is also a lack of rapid growth in the number of small and medium establishments and growth in employment per unit. Rushidan Islam Rahman, executive chairperson of the Centre for Development and Employment Research, speaks about employment growth, the share of female employment, real wage and how to encourage the growth of both large and small units, in an interview with The Daily Star.

DS: What does the new Survey of Manufacturing Industry (SMI) reveal about manufacturing sector growth?

Rushidan Islam Rahman: We are discussing the results of SMI 2019 (data is for the fiscal year of 2017-18). Although the publication of the full report has been delayed, I think it is still useful as it provides pre-Covid benchmark data.

Also, it makes possible a comparison with the 2012 SMI Report to track changes during the seven-year period. Growth of the manufacturing sector based on gross value-added shows an impressive 16.4 per cent compound annual rate of growth between 2011 and 2018 whereas it was 16.7 per cent between 2006 and 2011. The earlier phase's high growth may have been considered an early surge from a low base. But SMI 2019 shows that the growth has been maintained.

DS: Has there been commensurate growth in employment? Has it been a jobless growth as feared?

Rushidan Islam Rahman: When it comes to employment growth in manufacturing, the picture is not as bright as value-added growth. The annual rate of growth of employment in the recent phase was 1.23 per cent, much less than the 6.24 per cent annual employment growth during the earlier phase. If this trend continues, growth can become literally jobless. A slowdown of employment growth will result in higher unemployment and can affect wages and labour income adversely.

DS: Why did employment growth decline compared to the earlier period?

Rushidan Islam Rahman: Two forces can be readily identified. The first is the lack of rapid growth in the number of small and medium establishments and the lack of growth in employment per unit. Total employment in MSM (micro, small and medium) declined from 2.05 million in 2011 to 1.80 million in 2018.

The second is the rising capital intensity, especially among the large establishments. Despite that, employment growth could have been maintained if the number of such enterprises had grown. As this did not materialise, the number of large establishments has gone through a decline between 2011 and 2018 from 3,639 to 2,856.

DS: How did the micro, small and medium enterprises perform compared to large scale ones?

Rushidan Islam Rahman: The first observation is that the share of MSM in total employment in the sector declined from 41 per cent in 2011 to 34 per cent in 2018 although the number of such establishments grew by 10 per cent over the seven years.

The number of large establishments declined, still their share of total employment increased which implies a rise in average employment per unit.

The second concern is that total employment in MSM has declined.

It is also observed that the large establishments have a much higher share of female employment compared to MSM. Lack of women's employment in MSM in local areas may work against the scope of women's employment growth and discourage their labour force participation.

DS: What observations can be made on the trend of wages from the SMI data?

Rushidan Islam Rahman: SMI provides data on the total wage/salary bill of enterprises. It is observed that out of total salary/wage/benefits paid, the large industries' share is about 74 per cent, which implies their overwhelming control of the paid employment market. Moreover, the share has increased from 61 per cent in 2006.

The other important observation is that over this seven-year period, the increase in salary/wage payment was 17.6 per cent, which is rather low if one thinks of the inflation over this period. This is only a small fraction of the increase over the previous inter-survey period, which was 221 per cent.

DS: Can we use SMI data to make observations on wage/salary per worker?

Rushidan Islam Rahman: The SMI does not provide data on the number of paid workers, and thus wage/salary per worker cannot be calculated. In future, this data should be collected and reported.

In the absence of data on per person salary/wage, I have done some calculations of wage/salary per person engaged (including all types of employment) in large establishments. Assuming a low share of unpaid/family employment in such units, the average will be close to salary/wage per paid employee. This average has increased by 30 per cent over the seven-year period from 2011 to 2018. This is lower than the total inflation during this period indicating a decline in the real wage.

DS: Which sectors emerged as important in this round of SMI?

Rushidan Islam Rahman: The top rank was maintained by readymade garments as expected. The next two are food processing and cotton textile, same as the ranks in 2011. The diversification of subsectors has been low.

DS: What is the overall assessment of the emerging trends and what type of policy directions follow?

Rushidan Islam Rahman: To sum up, between 2011 and 2018, the growth of value added in this sector has been remarkable, but employment growth was very small. Large industries dominate not only in the growth of output but also in the growth of employment.

Employment per large unit increased considerably, accompanied by a decrease in the number of enterprises in this group, depicting increased concentration and scaling up. A decreasing number of large enterprises controlling manufacturing sector growth and employment, if it is to continue unabated, may cause a further slowdown of employment growth and worsen the already high-income inequality in the country.

The MSM establishments did not succeed in creating jobs. The efforts at revitalising the MSM must look for new policy instruments. While the SME development policies of the government have proposed many relevant areas of improvement, these need to be seriously pursued.

In addition, the local constraints that discourage the entry of new small enterprises can be identified if one considers issues beyond those highlighted by the existing enterprises. One must bear in mind that the constraints identified by the running enterprises may not reflect the reality faced by the failed ones or the discouraged entrepreneurs. There is also a need for serious soul searching on how to encourage the growth of both large and small units in more labour-intensive sub-sectors.

I also wish to take this opportunity to suggest that the SMI is conducted more frequently and the results are published within a year which will enable quick policy response.