Are we entering into a "jobless" growth phase in South Asia?
Jobless" growth is the phenomenon when an economy experiences growth without an expansion of jobs. In recent times, South Asia is considered to be the fastest growing region in the world. However, there are marked differences among South Asian countries in terms of economic growth. Over the past one and half decades, the high growth performing countries have been Bangladesh and India. Sri Lanka has been growing at a slower rate, Nepal's growth has been stagnant, and Pakistan's growth rate has been on a declining trend. Other South Asian countries have experienced much volatility of their growth rates. In contrast, Bangladesh has the least volatile growth rate compared to all other South Asian countries. However, there are genuine concerns whether the growth dynamics in South Asian countries have been able to generate a good number of jobs or these countries have entered into a "jobless" growth phase.
The relationship between economic growth and employment is an important issue in economics discourse. Promotion of inclusive growth also requires economic growth processes to be employment friendly. The measure that captures the employment effect of economic growth is the "employment elasticity" of economic growth, which is the ratio of percentage change in employment to the percentage change in real gross domestic product (GDP).
We have calculated the employment elasticity with respect to the change in real GDP for the South Asian countries for three different periods from 2001 to 2015. There are mixed patterns among the South Asian countries. During 2001 and 2005, Maldives had the largest employment elasticities (1.39) and Sri Lanka had the lowest one (0.08). India, with a share of 75 percent of the total population in South Asia, had the employment elasticity of only 0.38, one of the lowest in South Asia. Two other large countries, Pakistan and Bangladesh, had employment elasticities of 0.70 and 0.77 respectively.
For the period of 2006-2010, India experienced a drastic fall in employment elasticity to only 0.03 despite the fact that the average GDP growth rate of India increased from 6.6 percent (2001-2005) to more than 8 percent (2006-2010). Over these periods, Bangladesh also had a similar experience where employment elasticity declined from 0.77 to 0.4 in the wake of a rising average GDP growth rate from 5 to 6 percent. While Afghanistan, Maldives, and Nepal also experienced a decline, Pakistan and Sri Lanka could increase the elasticities.
Over the recent period between 2011 and 2015, Bangladesh experienced a further fall in the employment elasticity to 0.28, while India's improvement is meagre (from 0.03 to only 0.09). Despite the slower economic growth rates during this period, Afghanistan, Maldives, Nepal, and Pakistan could increase their employment elasticities. Sri Lanka had a further fall in employment elasticity to only 0.14. During this period, India had the least employment elasticity among all South Asian countries.
The aforementioned analysis points to the concern that two major South Asian countries, India and Bangladesh, experienced a substantial reduction in employment elasticities throughout the periods of high economic growth. While during 2001 and 2005, the annual average job creation in Bangladesh and India were 1.6 million and 11.3 million respectively, in 2011-2015, such numbers declined to 1 million and 3.2 million for Bangladesh and India respectively. Most of the other South Asian countries experienced either volatile, or slow or stagnant economic growth, and therefore, despite a rise in employment elasticities, the actual employment generation in these countries had not been substantial. It is also important to mention that while SDG 8 talks about ensuring "decent" jobs for all, South Asian countries are seriously lagging far behind. In most of the South Asian countries, there are persistent employment challenges such as lack of economic diversification, poor working conditions, low productivity and a high degree of informality. This is reflected by the fact that among the top five countries in the world with very high proportion of informal employment in total employment, four are from South Asia (Bangladesh, India, Nepal, and Pakistan).
The upshots of the above discussion lead to some important policy concerns and the necessity of revisiting the growth processes of the South Asian countries. In order to avoid the "jobless" growth phenomenon, economic diversification can play an important role in the South Asian countries. The economic growth momentum in these countries needs to be tuned for "meaningful" structural transformations of the economy where promotion of labour-intensive and high-productivity sectors, both in the farm and non-farm sectors, would be fundamental. This should be coupled with interventions to enhance productivity, jobs, and incomes in traditional and informal activities where there are large pools of surplus labour.
Dr. Selim Raihan is Professor, Department of Economics, University of Dhaka, Bangladesh, and Executive Director, South Asian Network on Economic Modeling (SANEM).