Unemployment in Pakistan

We dedicate this research report to our parents, to whom we owe everything that life has given us And to our inspirational instructor,… Without whose guidance and encouragement all this would not have been possible. Contents Introduction03 The Historical Perspective05 Causes of Unemployment06 Impacts on Pakistani Society07 Data Analysis09 Remedies14 Conclusion16 Bibliography16 INTRODUCTION DEFINITIONS • ‘The unavailability of jobs for the inhabitants of a society is called unemployment’. In economics‘One who is willing to work at a prevailing wage rate yet is unable to find a paying job is considered to be unemployed’. TYPES OF UNEMPLOYMENT There are seven main types of unemployment. 1. CYLINDRICAL When there is not enough aggregate demand for the labor. 2. FRICTIONAL When moving from one job to another, the unemployment temporarily experienced when looking for a new job. 3. STRUCTURAL Experienced when the structure of an industry or skill demands changes in mainly: 1. Switching from a declining industry to a rapidly growing one. 2.

Pace of change in the tastes of people. 3. Regional structure of industry. 4. TECHNOLOGICAL Caused by the replacement of workers by machines or other advanced technology. 5. CLASSICAL When real wage for a job are set above the market-clearing level, commonly government (as with the minimum wage) or unions, although some (such as Murray Roth bard,) suggest that even social taboos can prevent wages from falling to the market clearing level. 6. MARXIAN When unemployment is needed to motivate workers to work hard and to keep wages down, to preserve profitability. 7. SEASONAL

When an industry only is in demand certain times. For example, construction work, certain segments of agriculture, ski slopes, shopping mall Santas, and snow plow services. CATEGORIES OF UNEMPLOYMENT 1. Unemployment of unskilled or semi-skilled. 2. Rural unemployment. 3. Unemployment of educated young. Unemployment of women. 4. Industrial unemployment 5. Temporary or seasonal unemployment. THE HISTORICAL PERSPECTIVE The Historical perspective on unemployment is very interesting. In fact, it has at times been called one of the causes of the collapse of Roman Empire.

This shows that the issue is not new to mankind. But for a third world country like Pakistan, the perspective is even more interesting. When Pakistan was made in 1947, the country had not much of an industrial infrastructure and agriculture was the back bone of the economy. More than 70% of the population was associated with agriculture. But as time went on a few major problems started taking heavy toll. CAUSES OF UNEMPLOYMENT There are three broad groups of causes. [pic] Natural Rate of Unemployment Due to various reasons no country can achieve 100% employment.

There always exists a minimum rate of unemployment which is around 3-4 %. It is called natural rate of unemployment. This inevitable unemployment occurs because some people are searching employment. They are new young men and women entering job market. There is some structural unemployment which occurs because some old industries are dying e. g. handloom weavers, cart men, village blacksmith etc. have to shift to new jobs. Some people are unemployed due to seasonal nature of their work. Demand –Deficient Unemployment

This occurs because either there is depression in economy, or because development of industries and other sectors of economy is slower than the rate of increase of population. Aggregate demand may also fall due to political disturbances and factories may close down. Government may also decrease its expenditure. Excessive-Wage Unemployment When workers are demanding too high real wages, there will be unemployment There are many other causes as well: OTHER CAUSES OF UNEMPLOYMENT Poverty Poverty and unemployment are twins. A poor person has fewer chances of finding employment or creating self-employment.

And on the other hand, poverty is the destiny of unemployed. Rapid Population Growth Pakistan’s population is rising fast. Growth rate of our population is 2% which is one of the highest in the world. About a million new people are entering the job market each year. On the other side expansion in the employment opportunities is not enough to absorb all the new job seekers. Scarcity of Capital Capital is needed to put people to work. Employment opportunities cannot be expanded unless tools, equipment and materials are available in sufficient quantity.

But there is serious shortage of capital in Pakistan. Capital is created through investment. However, due to our limited saving capacity, rate of investment remains low. Mechanization of Agriculture and Automation in Manufacturing Due to increased use of machinery in agriculture, rural population is getting unemployed. A tractor and tube well displaces scores of people. The surplus agricultural labor seeks employment in urban centers. Similarly in many industries the use of automatic machinery and computers reduces the number of required workers. Slow Industrial Development

Due to various economic, social and political reasons the progress of large and small scale industry is slow. Enough jobs are not available in industrial sector to absorb the surplus labor from agriculture. Loans are misused. Instead of establishing industries, the people get these loans written off through political influence. Imbalance in Education Most of the students opt for general education. They want to get some white-collar job in an office. They are not interested in vocational training. The result is that when they leave educational institutions, they have degrees but no work training.

Employment opportunities for such people are limited. Capital Intensive Industries Most of the large and medium size industries are capital intensive i. e. the need huge funds, but fewer human hands. Labor intensive industries can create more job opportunities. Biased Attitude for Public Sector Employment In our country government jobs have more prestige than a similar job in private sectors. Government service means less effort, security of service, more chances for corruption and misuse of power. Private jobs demand more labor and involve risk.

So people prefer to become an office clerk than to work as a private electrician. But government jobs cannot be expanded to employ every candidate. Seasonal Unemployment Seasonal unemployment occurs in agriculture and some other industries like fan and air-cooler industry. IMPACTS ON PAKISTANI SOCIETY The impacts on the society usually are negative, and that is why unemployment is generally considered a menace. But, though very few, there are some advantages of this as well. These may not be to the bulk of the society or the common man, but some classes do benefit from this menace.

DISADVANTAGES Lacking a job often means lacking social contact with fellow employees, a purpose for many hours of the day, lack of self-esteem, mental stress and illness, and of course, the inability to pay bills and to purchase both necessities and luxuries. This last is especially serious for those with family obligations, debts, and/or medical costs, where the availability of health insurance is often linked to holding a job. Dr. M. Harvey Brenner, among others, has shown that increasing unemployment raises the crime rate, the suicide rate, and encourages bad health.

However, during the Great Depression, when unemployment rates exceeded 20% in many countries, the crime rate did not increase. Because unemployment insurance in the U. S. typically does not even replace 50% of the income one received on the job (and one cannot receive it forever), the unemployed often end up tapping welfare programs such as Food Stamps — or accumulating debt, both formal debt to banks and informal debt to friends and relatives. Higher government transfer payments in the form of welfare and food stamps decrease spending on productive economic goods, decreasing GDP.

Psychological Impacts The feared cost of job loss can spur psychological anxiety, weaken labor unions and their members’ sense of solidarity, encourage greater work-effort and lower wage demands, and/or abet protectionism. This last means efforts to preserve existing jobs (of the “insiders”) via barriers to entry against “outsiders” who want jobs, legal obstacles to immigration, and/or tariffs and similar trade barriers against foreign competitors. The impact of unemployment on the employed is related to the idea of Marxian unemployment.

Finally, the existence of significant unemployment raises the monopsony power of one’s employer: that raises the cost of quitting one’s job and lowers the probability of finding a new source of livelihood. Economic Impacts From Okun’s law we know that for every 2% fall in GNP relative to potential GNP, the unemployment rate rises by 1% point. High unemployment is a symptom of waste — for during recessions, when unemployment is high, the economy is not producing up to high level. When economy is not producing sufficiently, we can say that we are unable to use our full resources for production purposes.

Economy will not grow as fast as it can if become able to produce at high level. Social Impacts However large the cost to economy of unemployment, a recounting of Rupees lost does not adequately convey the human, social and psychological toll that periods of persistent involuntary unemployment bring. Although unemployment has plagued capitalism, the Industrial Revolution, understanding its causes and costs has been possible only with the rise of modern macroeconomic theory. It is apparent that recessions and the associated high unemployment are extremely costly to the economy. The Suicide Attempts

The government’s “all is well” claims are belied by the rise in suicide cases around the country. All is well, and yet it appears as if a sense of despair and depression prevails among many of the people, who increasingly appear to lack the ability or patience to face life in these stressful days. The average mind is plagued with economic difficulties, unemployment, crime and terrorism, and these lower the threshold for the bearing of discomfort According to figures released by the Human Rights Commission of Pakistan, there were at least 362 suicides and 320 attempted suicides in Pakistan only during the first quarter of 2005.

Last year saw a record 1,825 suicides all over Pakistan, mostly committed by people inflicted by poverty and unemployment. ADVANTAGES Benefits for the entire economy arising from unemployment include that it keeps inflation from being high, following the Phillips curve, or from accelerating, following the NAIRU/natural rate of unemployment theory. Also, a small amount of frictional unemployment allows employers to find the employees most suited to the jobs offered, while allowing workers to find the jobs that better fit their tastes, talents, and needs.

This amount may be very small, however, since it is relatively easy to seek a new job without losing one’s current one. As in the Marxian theory of unemployment, special interests may also benefit: employers often like having their employees in fear of losing their jobs, and thus working hard, keeping their wage demands low, etc. As noted, unemployment may increase employers’ monophony power. Unemployment may thus promote labor productivity and profitability.

Some say that slow economic growth and the resulting unemployment are actually good, since the constantly needed growth of the GDP cannot be sustained forever, given resource constraints and environmental impacts. But others ask if it is fair to burden the unemployed (usually those at the bottom of the economic heap) with the costs of limiting the use of resources and the abuse of the environment. DATA ANALYSIS Given below are some data regarding the present and past states of unemployment in Pakistan. Here the date are given only to refer to in the coming chapter(s).

The analysis of this data will be done in the coming chapter. Hence the deductions, predictions and any suggestions rooting from the data will follow in the later chapters. According to the Labor Force Survey (LFS) FY04, the unemployment rate has improved from 8. 3 percent in FY02 to 7. 7 percent in FY04. Thus, 41. 8 million persons were employed in 2003-04 compared to 38. 9 million in 2001-02. In other words, the economy added 2. 9 million new jobs during this two year period. Of these additional jobs, 1. 5 million went to males while 1. 4 million to females. The highest number of new jobs – 1. million – were created in the agriculture sector. The decline in unemployment rates looks even more attractive as it has taken place despite an increase in labor force from 42. 4 million in FY02 to 45. 2 million people in FY04 (see Figure 1). A part of this increase in labor force is attributed to a relatively higher participation level in FY04. While these developments appear to be encouraging, it is also important to understand the sources of the Improvement, as this can provide guidance for policy formulation to further reduces the unemployment rates in the country.

The aim of this section is to perform regional and gender wise analysis to identify he major contributors in improved employment rates during FY02 to FY04. A closer look at the LFS data of the two years provides some interesting insights: • The province-wise data shows that improvement in the employment rate was not across the board. As shown in Figure 2, during the period understudy, unemployment rates increased in Sindh and Balochistan. The unemployment rate in Sindh increased mainly due to relatively higher increase in labor force. While NWFP recorded a marginal improvement (of 0. 5 percentage points), it was only Punjab province that saw a major decline of 1. 14 percentage points in unemployment rates. As more than 60 percent of labor forced is in Punjab, this improvement also resulted in declining the overall unemployment rates. •

A comparison of unemployment trends in rural and urban areas exhibits that unemployment rates in rural areas declined more rapidly than that in urban areas (see Tables 1). However, the rural unemployment rates increased in both Sindh and Balochistan, while the urban unemployment rate only increased in Sindh. Looking at the gender-wise data depicts that fall in unemployment rates was more pronounced in case of females. Specifically, at aggregate level the unemployment rates of males and females declined by 0. 1 and 3. 8 percentage points, respectively. However, as females only account for around 18 percent of the entire labor force, larger improvement in this category only partially translated into a lower overall fall unemployment rates. It is interesting to note that female employment rates recorded improvement in all the provinces during FY02 to FY04 (see Table 1).

As the decline in female unemployment rate is more pronounced and broad base, it is pertinent to pay more emphasis on analyzing its declining trend. Accordingly, rest of the section is designed to analyze the fall in female unemployment rate in more details. Looking further into the female employment rates, though the improvement was more for urban female (i. e. , 4. 10 percentage point for urban compared 3. 22 percentage points for rural), its impact on overall unemployment rate was limited as only 21 percent of female labor force is living in urban areas.

Hence, the improvement in rural unemployment contributed more significantly to the overall decline in female’s unemployment rates, particularly in Punjab that holds 82 percent of the total rural female labor force. It is important to note that the employment of the rural females increased despite a considerable rise in female Labor Force Participation Rate (LFPR). 3 Specifically, the female LFPR improved by 1. 3 percentage point during FY02 to FY04 (see Table 2), which is significantly higher than the 0. 7 percentage point increase for males. [pic]

The bulk of the female labor force was employed as unpaid family helpers, especially in rural areas of Punjab (see Table 3). A significant increase in category during FY02 to FY04 contributed around 77 percent in total fall in female’s unemployment rates. A possible reason for the increase in unpaid family helper may be enhanced opportunities of employment in agriculture due to increased growth rate in recent years. 6 Another reason could be the better coverage of females, which is clearly reflected in lower sex ratio7 (according to LFS, the sex ratio has declined from 107 in FY02 to 105 for FY04).

The distribution of female labor force by major sectors also supports the view that employment gains are concentrated in female unpaid family workers, as the largest increase in the female’s employment was seen in Agriculture and allied industry (see Table 4 & 5). Similarly, the data of major occupational groups reveals that the increase in the female labor force is concentrated in agriculture and fishery workers (see Table 6). The increase in urban female employment was mainly in community services, manufacturing and construction industry.

Similarly occupational distribution of urban females shows that the employment increase in category of unskilled, craft and trade related workers (see Table 4 & 5). [pic] Conclusion While there is an evident decline in the unemployment rate, this gain is largely concentrated in rural areas, particularly in females, and is visible in higher number of unpaid family helper. This view is also supported by rising share of agriculture and allied industry in the distribution of female labor force by major industries.

Further, in terms of occupational groups, agriculture and fishery witnessed significant increases that support the view that rural female unpaid family helpers are the major beneficiary of employment gains. Table 7, shows the unemployment rates, rank and percentage change in unemployment in Pakistan, for the past few years. This again presents a rosy picture as Pakistan is continuously moving in the better direction according to all indicators. |Year |Unemployment rate |Rank |Percent Change | |2003 |7. 0% |119 | | |2004 |7. 70% |122 |-1. 28 % | |2005 |8. 30% |75 |7. 79 % | |2006 |6. 60% |65 |-20. 48 % | Table 7: Changes In Unemployment Over The Years UNEMPLOYMENT… WHAT IS TO COME??? Table 8 presents an overview of the change in Unemployment rates due to changes in population, employment generation and the effect it has on the labor force available.

This table gives the trends seen in these variables in the past few years and based on these the changes to come in the next few years. This shows a good positive picture and proves that the steps being taken are showing some effect. But a lot more needs to be done, and this can be done by decreasing the exponential increase in population. As the table shows, the population rate increases vociferously and has a negative effect on the employment rate. The Table also shows that as employment generation increases from 43. 15 to 50. 12 from 2004-05 to 2009-10, the unemployed population decreases from 3. 51 in 2004-05 to 2. 9 in 2009-10. But this goes with an increase in population in 2004-05 from 153. 45 millions to 167. 52 millions in 2009-10. This gives a clue about what could be done if the population increase rate is decreased. Even with this increase rate, the employment generation rate is increasing and the unemployment shows a decrease. This shows what difference can be made if the population increase is somehow slowed down. This is where the role of a common man, in fact that of every citizen of Pakistan, exists. Government of Pakistan is doing its role, as the stats for Unemployment and employment generation show.

In fact, it is the responsibility of common man that is not being fulfilled. [pic] Table 8: Labor Force and Employment, What Has Come & What Is To Come The graph (Fig. 3) shows that in the past few and the coming few years the employment generation presents an increase and the unemployment rate presents a decrease. This again is a positive indicator and shows that the steps being taken have a positive impact. [pic]Fig. 3: Relative Trends of Unemployment and Employment Generation REMEDIES Population Control This is the single most important method to reduce unemployment.

When the growth of population will slow down, the number of job seekers will be lower to match the availability. Steps such as spread of education, popularization of the concept of small family and improvements in status of women should be adopted to reduce birth rate. Increase in Capital Formation More capital means rapid economic development. In order to increase capital accumulation, savings should be encouraged. Foreign capital also helps to undertake new projects. Rapid Industrial Growth Final solution for unemployment lies, on the one hand, on slow population growth and on the other hand, on rapid expansion of industry.

It is industry, which can provide not only jobs but also higher incomes to eradicate poverty. Small Scale Industries Since small scale industries are more labor intensive, so in industrial policy, development of such industries should be encouraged. Technical Training and Skill Formation There should be more emphasis on imparting technical training and skills to the people. In the future development of our economy, only skilled persons have scope for employment. Encouragement of Self-employment Through suitable financial schemes, self-employment be encouraged in the form of small business, workshops, clinics etc.

Diversification of Agriculture Instead of concentrating on formal crops, activities allied to agriculture should be expanded e. g. fruit growing, dairy, poultry, fish and bee farming, processing and packaging of foods. Change in Social Attitudes Through education, people’s attitude towards work and jobs needs to be changed. Manual labor should be given due respect so that young people willingly adopt it. They should be taught not to hesitate to work in factories. Government Policy The government through various steps and policies has always encouraged creation of employment opportunities.

In this regard programs like Khushal Pakistan are helpful. Prior to Khushal Pakistan, Social Action and Taameer-e-Watan programs had been followed. By concentrating on small projects, these programs create large number of jobs. SMEDA (Small and medium enterprises development authority) has been established to promote small business and increase employment opportunities. 1. Education and Training The most important contribution that the national governments can make to economic growth and an efficient labor market is education and training.

According to the UNDP report there is overwhelming evidence that the best investment countries can make is the basic education. The fact that the retrenchment displaced thousands, the majority of whom were not equipped to take up the new activities, and with fewer new job opportunities many of which are less well paid, less secure and of lower quality also pose many challenges for the government in Pakistan. However, while many public sector enterprises were forced to cut their work force the government can still ease the situation by focusing its attention on the transfer of employment from declining to growing sectors.

It is important that the opportunities to increase employment in declining sectors should not be forgotten. For instance, Pakistan has the biggest canal network in the world. While the agriculture sector still remains the biggest employer in the country the project to clean the canals to facilitate smooth flow of water to the end users is a must to increase productivity in agriculture as over 60 per cent of exports pertain to a single commodity— cotton. Investment in irrigation can create new jobs in the labor intensive sector of the country.

Tens of thousands of employees in the private sector have lost their jobs during the last couple of years including over 20,000 in nationalized banks and state-run non-banking financial institutions; Pakistan International Airlines, Steel Mills, Karachi Port Trust, Karachi Water and Sewerage Board, Railways, and many government ministries and departments. CONCLUSION Pakistan’s economy and rate of employment is in a much better position these days then it was prior to 1999. Economy has achieved macroeconomic stability as revealed by the performance of all relevant indicators. The GDP growth rate has shown substantial improvement.

In the future, the performance of Pakistan’s economy will depend upon the interplay of domestic, regional, and international factors. First, on the domestic front, the performance of the economy depends upon the continuity of structural reforms imposed by the government of General Musharraf. These reforms overhauled the major structures of the economy and unemployment and are the beginning point for strengthening the institutions of economic governance in the nation. Success in continuing implementation of governance reforms, police reforms, administrative reforms, social sector reforms, and so on, will determine the future course of action.

Pakistan’s economy has shown a fair degree of improvement since General Musharraf’s initiatives in these areas, but the possibility remains that it may again fall victim to vested interests, returning the country to an institutional graveyard of inefficiency and corruption. The government is not wholly responsible for unemployment. There is a need of contribution from every Pakistani in order to curb this evil of unemployment. Creating awareness among the masses, getting quality education, controlling birth rates and over-population are some of the few major fields; every Pakistani can take part in.

We need to realize our roles as responsible citizen of Pakistan. Though far-reaching results cannot be obtained in a blink of the eye but long journeys always begin with a single step. If every Pakistani becomes conscious of his role as an individual, then InshAllah that day would not be far when Pakistan will be at par with the developed countries of the world.

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