Lumpen workers in a changing labour market

Updated March 18, 2019


A worker is seen on an electricity tower in Karachi.— Reuters/File
A worker is seen on an electricity tower in Karachi.— Reuters/File

A recent meeting of the National Financial Inclusion Strategy Council (NFISC) chaired by Finance Minister Asad Umar has set a target for generating minimum three million jobs over the next five years.

For this, soft loans will be provided for low cost housing (LCH), small and medium sized enterprises (SMEs) and small farmers. Jobs are also expected to be created by Chinese, Saudi and UAE investments in housing, manufacturing, energy etc.

Prime Minister Imran Khan says it would not be possible to build five million houses under his flagship Naya Pakistan Housing Programme unless a case regarding foreclosure laws in Lahore High Court is decided. Foreclosure law enables the lender to take over and sell the mortgaged property if the borrower defaults in debt repayment.

Mortgage lending incentivised by tax concessions and subsidised refinancing to banks is not considered enough to generate required credit for LCH scheme. Addressing the launching ceremony of the State Bank of Pakistan’s finance policy for LCH, the prime minister said he believed that five million jobs could be created in first year of the LCH programme if obstacles were removed.

Well-designed markets and institutions are useful tools for labour protection

Employment generation is also linked with overall economic environment. It is not clear how long the current stability phase with subdued growth will last with IMF’s 3-year austerity programme yet to come. The rupee’s depreciating purchasing power and rising inflation rate are eroding domestic savings needed for housing investment. Foreclosure laws, when enforced, will enhance borrower’s risks.

Throwing light on the relationship between GDP growth and job creation over a period of five years ending FY2018, Dr Hafiz A. Pasha estimated the cumulative growth in the size of the economy at 26 per cent and corresponding growth in employment at 10pc. For every 1pc growth the increase in employment was close to 0.4pc.

Describing it as a low response of employment to growth he however pointed out that it did highlight that the labour productivity increase was much faster. Over the last decade, he noted that the productivity contribution to a 1pc increase in GDP was faster by 0.16pc as compared to employment.

In a critical analysis of the Labour Force Survey 2017-18 data he argues that the adjusted unemployment rate in FY2018 was 8.4pc. Surprisingly, at 20pc the unemployment rate was much higher for workers with a degree of postgraduate qualification compared to 5pc for unskilled workers. “This is truly a tragic waste of limited human capital”, he said.

In resurgent Asia, the outlook for surplus labour force does not appear to be optimistic. In this regard, the International Labour Organisation (ILO) report on World Employment: Social Outlook 2019 has come out with some interesting findings.

Released on the occasion of the World Social Justice Day in January, the ILO report notes a sizeable proportion of employees in Asia Pacific region suffer from job insecurity, income instability or lack of a written work contract. Informality in the region remains the highest globally affecting close to 70pc of all workers.

Southern Asia has the highest share of informal employment. (One estimate puts it at 80pc for Pakistan). Temporary employment also pays a significant role in manufacturing, averaging at 20pc. There are millions who work for excessively long hours, more than 48 hours a week.

In its Development Report 2019, the World Bank recommends that government must accord priority to development of skills required for a changing market and extend social protection to all people in society. To finance social safety network, the tax base must be increased.

This is the course successive governments in Pakistan have been pursuing, gradually expanding social safety network through various schemes: Benazir Income Support Programme, Zakat, Usher, PM self-employment scheme etc. Now the PTI government has launched Sahat Insaf Card Scheme. The card entitles free healthcare in top quality hospitals to individuals earning Rs300 or less per day. Over 15 million people are to be covered under the scheme in the next two years.

But the informal sector has yet to be tapped in a meaningful way to raise tax revenues to a level that will enable financing the social safety network for all people in society, as visualised by the World Bank experts.

The World Bank approach is also being questioned by the ILO and others. To quote ILO, “Efficiency and redistribution have to be considered in evaluating the impact of labour market on employment and decent work. Well designed markets and institutions are useful tools for labour protection. Minimum wages remain a useful instrument of labour protection and ensure that workers are paid minimum decent wages.”

The issue is further elaborated by The Economist: “Receiving a cheque from the state social fund may be nice but would the ordinary people feel empowered. The issue is how to protect the unskilled people from the chronic insecurity. Many gig workers get less than the minimum wages. It is the standard for self-employment people to have fewer rights than employees. They have no pensions, retirement benefits and have no savings.”

Published in Dawn, The Business and Finance Weekly, March 18th, 2019