It's all about jobs

Creating labour intensive industries is key to improving economic growth. Photo: Liton Rahman/Driknews

ACCORDING to a recent Daily Star newspaper report, both unemployment and under-employment have increased in Bangladesh during 2006-09. The economy of Bangladesh needs to generate employment at sufficiently high rates, not only to absorb the new additions that take place in the labour force, but also to take care of the backlog of unemployment and under-employment.
For employment to be productive it needs to be linked to the process of production. Thus a higher output growth is a necessary condition for creating jobs that are productive and remunerative. However some countries with high rates of economic growth, like China and India, are still grappling with the problems of unemployment and underemployment. So, what is the problem?
For Bangladesh, low output growth is definitely part of the problem. In order to estimate the growth rate of output that is needed to absorb all the new entrants into the labour force, one needs an estimate of the growth of labour force.
If one uses a labour force growth of 3.3% per annum (as is reported in the government's revised PRSP II document) and assumes that 1% GDP growth creates about 0.5% increase in employment (the latter figure obtained from an ADB report of 2005), GDP growth of at least 6.6% would be required just to absorb the new additions to the labour force.
The economy of Bangladesh achieved that growth rate only in 2005-06. And since then the economy has witnessed a slow decline in growth rate. So, inadequate growth is clearly a part of the problem.
Inadequate growth of manufacturing is another problem. In order to achieve a high growth rate of productive employment, the manufacturing sector has to act as the engine of growth. Countries like South Korea and Malaysia show that manufacturing has grown at nearly double the rate of growth of overall GDP. This implies that not only GDP has to grow at something like 6.5% to 7% per annum, but manufacturing has to grow at nearly 12% per annum. In Bangladesh, growth of this sector exceeded double-digit figures only in one or two years.
In order to get a clearer understanding of the problem of inadequate employment, it is necessary to look at the growth of employment in relation to the growth of output. This relationship can vary from country to country and over time in the same country.
An ADB report of 2005 showed that the proportion of employment growth in relation to output growth declined in several Asian countries, like Bangladesh, China, India, Indonesia. In Bangladesh, the proportion was 0.550 during the 1980s, which declined to 0.495 during the 1990s. What has happened during the 2000s is not known. But if unemployment and under-employment really increased in recent years, it would be important to examine whether the trend continued.
It may be mentioned in the above context that the countries, which were able to combine high economic growth rate with high employment growth rate, were the ones where unemployment and under-employment declined quickly. They include South Korea, Malaysia, and Taiwan. In Korea, for example, during the 1960s and 1970s when there was a high degree of unemployment, the proportion of employment growth to output growth in manufacturing was in the range of 0.6 to 0.7. Malaysia also had similar experience during the 1980s and 1990s.
Why is the rate of employment growth in relation to output growth different in different countries? One factor is the type of technology used. Of course, this may not be an attractive option to entrepreneurs, especially when competitiveness is key and it is important to use the advanced technology in order to be competitive.
A factor that can really make an impact on employment growth is the composition of industries. There are certain industries like garments, electronics, leather products, shoes, toys, and furniture, which are labour intensive by their very nature. Even if the state-of-the-art technology were used in such industries, they would still employ large numbers.
And if more such industries grow in a country, the employment to output growth will be higher compared to a country where the industrial sector is dominated by more capital-intensive industries. This is how countries like Korea and Malaysia were able to achieve high employment to output growth rate.
Bangladesh also has the potential to promote labour-intensive industries following the pattern of growth observed in Korea and Malaysia. However, the process remained limited to just the ready-made garments industry.
It is only in recent months that we read newspaper reports of forthcoming investments in the shoe industry. We need much more of such investments and in several more such industries in order to be able to reverse the trend of worsening unemployment and underemployment situation.
In other words, we need to formulate and implement policies that would help achieve diversification of the industrial sector and growth of more labour-intensive industries.
Another sector that can make a difference to the employment growth is the construction sector. This sector can be important in light of creating necessary infrastructure that could facilitate further investment. This is also the sector, which is amenable to the use of labour intensive technology without compromising on productivity and competitiveness.
It is no coincidence that the period when the employment situation worsened (2006-09) is during the period where there was a decline in growth of the construction sector in Bangladesh. It would be important to reverse this trend; and from that point of view, public investment in infrastructure would be important. This also is a sector where public-private partnership may have some potential.
A word may be said about the usefulness of the government's employment creation and safety net programs, which are often regarded as "dole" and undesirable. Two remarks on this are in order. First, social safety nets and social protection are important for a variety of reasons, and must not be dismissed as undesirable. Secondly, employment-based safety net programs can be linked to production if they are linked carefully to the construction of much needed infrastructure.
I have not yet said anything about another means of closing the gap between labour force and employment generated within the economy -- international migration of workers. This is extremely important for the economy of Bangladesh -- as a source of both employment and foreign exchange.
However, this is an uncertain and volatile source of employment. For example, during 2007-08, the number of Bangladeshi workers going abroad exceeded 800,000 per year, but it came down to less than 500,000 in 2009. Second, a look at the personal aspects of migration would show that while there are stories of success and upward mobility, there are also stories of abuses, frustration, and disasters.
I would, therefore, be in favour of strategies to gradually reduce the dependence of our economy on international migration of workers and immediate steps to reduce the pains and abuses associated with the process.

Rizwanul Islam is an economist and is former Special Adviser, Employment Sector, International Labour Office, Geneva.