Employment and labour market: Reversals, riddles and emerging issues

One basic characteristic many developing countries, including Bangladesh, share is the coexistence of a large traditional segment and a small modern sector. The former consists of activities with low productivity and low incomes, especially in agriculture and other informal economic activities, while the opposite is the case in the modern sector. 

It is expected that the development process will lead to a rapid expansion of the modern sector so that most of the new members of the labour force, as well as some from the traditional sector, will be able to find jobs there. 

The experience of countries that have been successful in achieving this, notably those in East and Southeast Asia (e.g., the Republic of Korea, Malaysia, Taiwan-China, etc.), corroborates this. What has been the experience in Bangladesh?

Is economic growth becoming jobless?

A basic indicator of performance in generating employment is the rate of employment growth compared to output growth. Graph 1 shows that the rate of employment growth declined while GDP growth accelerated over time. 

Employment growth per unit of GDP growth was 0.5861 from 1999–2000 to 2005–06. It means that during that period, every%age of GDP growth led to employment growth of about 0.59%, i.e., employment growth was a little over half of GDP growth. Was it good enough?

One way of looking at it would be to compare it with the performance of countries at similar stages of development. The Republic of Korea and Malaysia can be taken as examples. In the former, the figure was close to 0.7 during the 1960s and 1970s. 

In Malaysia, the figure was also higher in the 1970s and 1980s. Not only was the figure low in Bangladesh, but it started to decline after 2005–06 and fell sharply to 0.2775 from 2010 to 2016–17. 

From 2016/17 to 2022, the figure rose to 0.4191, which is questionable because the latter survey shows a huge increase in female labour force participation rate and employment in rural areas. 

For men, the growth of employment per unit of GDP growth was a meagre 0.2188. Such a sharp decline in the employment outcome of economic growth when the country still needed high employment growth is a major disappointment.

Reversal of expected trends 

Another disappointment in the labour market is continued dependence on agriculture and other rural activities. The process of transfer of labour from agriculture to manufacturing and other modern sectors got reversed after 2016-17. 

In fact, even the absolute number employed in agriculture increased (from 24.7 million in 2016-17 to 31.98 million in 2022), while the number in manufacturing fell from 8.18 million to 7.86 million. The share of manufacturing in total employment fell from 14.4% to 11.26%. To compare, at its peak in the Republic of Korea and Malaysia, the proportion of employment in manufacturing was 23%.

The quarterly labour force surveys carried out in the first two quarters of 2023 show some improvement in that the declining trend in manufacturing appears to have been arrested. But the growth of employment in manufacturing remains very low.

One result of the slow growth of employment, especially in the formal modern sectors of the economy, is the continued dependence of a very high proportion of the labour force (about 85%) on the informal sector for somehow eking out a living. So, economic growth has not been jobless in a literal sense, but good jobs, especially in the modern sector, are not being created at the expected rate.

High rates of youth unemployment and unemployment of the educated continue

The way unemployment is defined and measured in labour force surveys (one who has not worked at all during the reference week and has been looking for work) makes it unlikely for many to report being unemployed. 

In the absence of unemployment insurance and the criticality of jobs for ensuring incomes, people tend to do something to eke out a living. Even so, open unemployment can be a good indicator for youth because many of them may have support from family and be able to remain unemployed while searching for jobs. 

As a result, the rate of youth unemployment is usually much higher than the overall average. And Bangladesh is no exception in this regard. The youth unemployment rate increased from 2010 to 2016–17 (from 7.5 to 10.6%). Although the rate declined after that, in 2022, it was still higher (8%) than in 2010.

While the high rate of youth unemployment is an important issue, particularly worrisome is the high rate of unemployment among graduates (12%). And that rate is double for women (about 19%) compared to men (9.5%). This must be a discouraging factor for women's education as well as participation in the labour market.

Data from the labour force surveys brings out riddles and raise questions

Data from the surveys of 2022 and 2016-17 shows a sharp rise in the growth of the labour force during the period. Compared to 2002-03 to 2010, there was a decline from 2010 to 2016-17. The number of people joining the labour force every year also declined. But after 2016/17, there was a reversal of this trend (see Table). 

This is surprising because one would have expected the decline in labour force growth to continue.

The other figures that raise questions are a sharp rise in the rate of female participation in the labour force in rural areas (from 38.6% to 50.9% between 2016-17 and 2022) and a big fall in urban areas (from 31% to 23.6%). In fact, the female participation rate in urban areas has been declining since 2010 (see graph 2).

It would be important to see whether rising opportunities helped the jump in the rural rate or was simply due to other reasons, like girls who were out of school during the Covid-19  pandemic joining the labour force. Also, the factors behind the fall in women's labour force participation in urban areas need serious investigation.

Disappointing labour market performance coupled with falling real wages produced double whammy for working class

The disappointing performance of the labour market despite the gradual acceleration in economic growth raises several questions. The first and most basic issue concerns the strategy of development itself, which is characterised by a single-minded pursuit of growth. 

The issue of employment receives only lip service in policy in the form of brief mentions (e.g., of export-oriented strategy as a means) and very rough projections. 

In fact, the strategy for exports is confined to ad hoc incentives for one export item (viz., RMGs), and a full-fledged export-oriented strategy has not been adopted. 

As a result, exports have remained concentrated on one item, and the degree of concentration has increased over time. While traditional exports like jute, jute goods, and leather stagnated, new items like medicines have remained minuscule in proportion. 

And apart from leather and leather products, they are not labour-intensive like electronics, furniture, shoes, etc. In sum, broad-based export-oriented labour-intensive industrialisation seen in countries of East and Southeast Asia never materialised in Bangladesh.

Even in the RMG industry, there has been a stagnation of employment in recent years. As a result, the annual growth of employment in manufacturing fell from 6.34% per annum during 2005–06 to 2010 to 4.16% from 2010 to 2016-17. 

During the earlier period, the sector created about 350,000 jobs annually. That number declined to about 200,000 in 2015-16 and 2016-17. Between 2016–17 and 2022, only 146,000 jobs were added to the industry—less than 30,000 per year. This is very small compared to the annual addition to the labour force of about 1.8 million.

Real wage rates (the wage rate that reflects the cost-of-living index) fluctuated, rising in some years and falling in others. What is particularly important to note is that they have fallen even in periods of reasonably high rates of economic growth, e.g., 2008–09 to 2014–15 and 2021–2023. 

The process of wage setting illustrates the weak position of workers in an important industry like RMG, where the voices of workers are ignored, workers face repression, and wages tend to remain much lower than what is regarded as "living wages."

The usual refrain for low wages, especially in the RMG industry, is that of competitiveness. However, the wage rate in Bangladesh is found to be lower than almost all other exporting countries in Asia. 

So, the question naturally arises as to why exports from Bangladesh cannot be competitive if wages are raised to the level of competitors. The simple fact is that because of various incentives, there has been excessive investment in the industry, which has resulted in excess capacity. 

That, in turn, has given rise to a situation where producers and suppliers compete among themselves to get contracts at prices dictated by buyers. And that brings one back to the growth strategy itself, which has failed to diversify the export-oriented manufacturing sector.

While there were failures in the growth strategy, new challenges are emerging

The failure of the growth strategy is also reflected in the continued dependence on overseas jobs as a major source of employment as well as foreign exchange. The short-term imperative of maximising these gains has led to a situation where Bangladesh has become the brand name for the source of low-skilled (read unskilled) workers at low wages. 

In addition, overseas job seekers are highly susceptible to exploitation and abuse at both the sending and receiving ends. Thus, the twin benefits of jobs and foreign exchange come at a high cost.

Apart from the failure of the overall development strategy, limitations of the system of education and skill development have also been exposed by the high rate of educated unemployment on the one hand and a shortage of required skills in many branches of economic activities.

While there has been a mindless expansion of general education without much regard for the changing requirements of a growing economy, prospective employers often complain of a shortage of required qualifications and skills. The skill development framework for the overseas job market also suffers from a lack of vision and long-term strategy.

To add to the challenges mentioned above, the ever-expanding technology frontier has the potential to create opportunities for further progress and, at the same time, create dilemmas. New technologies are often labour-saving and may be associated with the danger of job losses.

But history tells us that, in the long run, the technological revolution has been associated with improvements in productivity as well as the expansion of employment. The fourth industrial revolution and innovations based on artificial intelligence may also result in job losses in the short run, but their intelligent use will require human beings, albeit with different kinds of skills.

While there will be churning in the labour market in the short run, the eventual outcome is more likely to be positive if the wrong policies are not adopted to make new technology artificially cheap. Of course, there will be winners and losers in the process, and prudent policies will be needed to provide necessary support and protection to those who are likely to lose.

Several issues relating to education and skill development need to be addressed, including: whether the basic role of the education system is to prepare students for jobs or to make them trainable so that job-specific training can be provided in places of work; the role of enterprise-based training in imparting job-specific skills and the responsibility of enterprises in providing such training; if the public sector takes up the responsibility for imparting industry-specific training, can mechanisms be worked out for recovering the cost from the industry?; and in view of the fast pace of change in technology and the rapid rate of skill obsolescence, continuous education and lifelong learning have become key to preventing redundancies. How can this be incorporated into the education and training system as well as in the workplace?

Rizwanul Islam, an economist, is a former Special Adviser at the Employment Sector, International Labour Office, Geneva. His most recent book is Unnayaner Arthaniti (second expanded and revised edition), UPL, Dhaka, 2023.