THE labour and employment situation has changed a lot over the years. The era of strong labour unions is over. Workers union in public enterprises have more or less evaporated as privatisation gained momentum. The private sector is too focused on core business and less inclined to provide lifetime career to all its employees. And investment in staff training and human resource development has declined.
While the employers seem to be more interested in contract labour, the employees change jobs by shifting from one company to another very frequently for better wages. Employees have started looking for life-time employment through various jobs. The skilled worker is in great demand but there is surplus labour in areas where education and job requirement do not match. In overall terms, the loss is of the individual workers, the private sector and the nation on a whole.
Contract jobs through third party contractors are often preferred by the employers. The system reduces a company’s responsibility and fiscal burden apart from legal costs. On top of that, the third party contractors are not registered anywhere and operate in the informal sector.
The companies are opting for a flexible labour policy, which combines cuts in the regular workforce with contract labour and outsourcing to the independent service providers. While it may have helped in reducing fat, cost cutting and enhanced profitability, such a situation has aggravated the unemployment problem.
According to the World Bank’s latest study, the share of workers with job regularity fell from 55 per cent in 1997-98 to 50 per cent in 2003-04 partly because of the declining share of government employment. “Job security, therefore, is non-existent for a large and growing majority of workers outside government”.
Informal workers are not covered by most labour regulations, labour protection or social security laws. They receive no pension when old. They often work very long hours at low pay.
The incremental labour force, growing at three per cent per annum, against employment growth of 2.75 per cent, is not being fully absorbed. The rate of unemployment has grown from 4.8 per cent a decade back to 6.2 per cent in second quarter of 2005-06. The burden of open unemployment falls disproportionately on youth, particularly the urban, educated youth and the females.
Pakistan has a low labour force participation rate, a labour force of 45 million in a population of 150 million.
According to the World Bank, Pakistan has one of the highest( 36 per cent share of temporary workers) while the average real earnings of the workforce has declined by 3.5 per cent in 2003-04 compared to 1997-98. The World Bank calls for a flexible labour policy with tilt towards the employer, which it believes would, in turn, improve the labour conditions – an expectation so far unheard. Interestingly, the slower growth in job creation has not been not compensated by improvement in the quality of jobs.
“Job earnings are low and Pakistan faces the double challenge of providing more jobs while also improving earnings and the quality of jobs”. Average earnings for salaried employees in 2003-04 were Rs4,088 per month ($68). For a typical family of six with one person employed, the average earning places that family below the poverty line. Earnings for self-employed are not available but are believed much lower.
Under-employment – seasonal or chronic – is another problem facing many workers, especially those in self-employment or agriculture. Under-employment translates into income losses. Many workers in rural areas have three “inactive” months in a year where they are mostly unemployed, with some 40-60 idle days per year.
Average earnings for poor rural workers are less than Rs2000 per month ($33 per month). Earning differentials are large – average earnings in rural areas are 68 per cent of earnings in urban areas, while female wage employees earn 59 per cent of males although it is not clear if it is for similar work. Earning differentials between rural and urban areas have been diminishing, while those between men and women have been increasing.
For elementary workers, the average real earnings eroded by 11 per cent from Rs2,671 in 1997-98 to Rs2,374 in 2003-04. Real earnings in the private sector fell more in the informal than in the formal sector. In contrast, government employees saw real wages improve by 21 per cent on average. Real wage gains were also made by some of best-paid professional categories.
The rest experienced falling real earnings, with a sharp fall in real wages of illiterate or less-educated workers.The bank says “informality is widespread and has been growing”. The informal sector accounts for 70 per cent of non-agricultural employment and 55 per cent of wage employment.
Informal sector employs 73 per cent of workers in rural areas and 67 per cent in urban areas. “Informality overall grew by five percentage-points form 65 per cent in 2001-02 to 70 per cent in 2003-04”.
Interestingly, some 61 per cent of the employed labour force in 2004 was self employed or unpaid family helpers – up by two percentage-points from 2001-02.
Lack of job opportunities rather than inherent entrepreneurial spirit is the main reason why people become self employed. “Piece rated and casual employees account for 48 per cent of total employees and only one-fourth of workers in the informal sector are regular employees in contrast with 97 per cent of those in government employment”.
The challenge for policy makers is, therefore, not only creating jobs for the unemployed and for the new entrants in the labour market but also further improving the productivity and earnings of the available jobs in order to reduce the very large number of ‘working poor’ and to improve the welfare of a large number of poor, marginalized or exploited workers.
The World Bank has advised the government to reduce regulations on labour market, cut down hiring and firing costs and allow redundancy as fair ground for dismissals as it believes the tight regulation is resulting in lack of investment in the workforce and reducing regular jobs.
Pakistan permits term contracts for a maximum of only nine months for jobs of a temporary nature. Such inflexibility in the timing and use of employees limits companies’ ability to grow and thrive. Countries like China, Malaysia, Singapore and New Zealand place no limits on the duration of fixed term contracts and in doing so, increase job opportunities.
Significant reduction in compliance costs could be made by simplifying inspection schemes, working conditions norms and mechanisms for the collection of social security contributions. One measure that the government is currently considering is to introduce joint liability between principal employer and contractor to tackle a situation where much of the labour force has been able to operate outside of the law due to a high degree of non-compliance.
It is hoped that the Employment and Services Conditions Act, (ESCA) 2006 currently awaiting cabinet approval along with amendments to Industrial Relations Ordinance 2002 would cover some of the grey areas but it would have got higher acceptability had local workforce been involved in the consultation process instead of relying heavily on international organisations and UN bodies on labour. Such organization may have very good intentions and positive outcomes elsewhere, the dynamics of local labour may not have been fully conceived by the outsiders.
The ESCA 2006 has been created by consolidating 11 separate laws governing conditions of employment and wages for a number of sectors into a new draft act. It focuses on consolidating existing laws, removing overlapping and inconsistencies and allows greater flexibility, particularly on the hiring and firing side and working hours tilting towards the capitalist and proposes restrictions on women working hours.
Since the nine-month limit on contract term is considered as one of the most inflexible hiring legislation in South Asia, the term “temporary worker” has been abolished to increase labour market flexibility by eliminating the time limit on term contracts.
The new laws would increase the maximum hours per week to 60 hours from 48 hours and maximum hours per day from 10 to 12, increasing the maximum number of overtime hours from two to four per day.
It also introduced the concept of ‘contract worker’ paid on a piece-rate basis without overtime and all benefits afforded to permanent workers. It would also enable the womenfolk to work past sunset until 10pm, provided employers arrange transport facilities and increase the monthly wages compensation payable for workmen injured.
THE labour and employment situation has changed a lot over the years. The era of strong labour unions is over. Workers union in public enterprises have more or less evaporated as privatisation gained momentum. The private sector is too focused on core business and less inclined to provide lifetime career to all its employees. And investment in staff training and human resource development has declined.
