A major cause of low productivity is being attributed by eminent economists to firms’ hiring on contract temporary, unskilled, low paid and demotivated workers and employees with no training or skill formation.
To quote former State Bank governor Dr Ishrat Husain “the most lingering and persistent phenomenon that needs to be tackled is low productivity in our export industries” that, he says, is among the lowest in the region and only 30-40 per cent of that of China.
And according to the corporate sector, the underperforming workers compel employers to hire extra hands, which raises the wage bill and erodes their competitive edge.
To improve productivity, Dr Husain suggests a different approach instead of the current practice. He projects a scenario in which the overall productivity rises by 20pc by attracting, retaining, compensating well and motivating workers and employees. In that case, the split in the gains accruing to the owner in the form of profits would be 15pc and only 5pc to the workers.
Owing to low productivity and lack of competitiveness, Dr Husain observes that Pakistan’s share in the global export market has declined from 0.2pc to 0.15pc in the last 30 years.
Despite the free fall of the rupee to much below its real effective exchange rate and enormous stimulus provided for exports by the PTI government, the trade deficit in July-October went up by 103pc to $13.8 billion compared to the same period last year. Imports of goods accounted for $23.5bn against exports of $9.6bn.
The gross domestic savings rate (of which 85pc comes from private savings) has declined from around 20pc of GDP to under 10pc between 2002 to 2020 — in India, the savings rate was 28pc
However, the issue of living wages for workers and fair compensation to employees needs to be seen and analysed keeping in view the big picture as it affects the country’s overall economic growth.
The size of the domestic market is determined by the purchasing power of the consumers who are also producers.
In Pakistan, formal savings are very low, partly, as analyst Umar Javed says because Pakistan is a poor country afflicted by frequent rounds of low growth and high inflation. And an average of 40pc of total household expenses is spent on food. With such high allocation towards basic needs, he adds, there is likely not much to be leftover to save.
The gross domestic savings rate (of which 85pc comes from private savings) has declined from around 20pc of GDP to under 10pc between 2002 to 2020. In India, the savings rate was 28pc.
The importance of decent wages, domestic savings and investments for sustainable economic growth cannot be over-emphasised for a country under heavy debt and persisting external sector pressures. The solution lies in reducing foreign dependence.
The right to work and earn a decent living is inextricably linked with mobility and transport in the urban context, says Zeenat Hisam, a researcher in the development sector in her article on ‘Workers and Mobility.’
Transport is considered a key marker of economic development as it connects workers with employment. The International Labour Organisation defines public transport as a basic service, a facilitator of mobility and an enabler of other rights.
Ms Hisam quoted the example of Karachi where the public transport is inadequate, very costly and time-wasting. It is often difficult or even impossible for people to travel from their residence to workplaces.
In their current year’s budgets, the federal and provincial governments increased minimum wages, squeezed by Covid-19 fallout and high inflation rate but trade unions did not consider it enough.
The wage increase to Rs25,000 per month by the Sindh government has also been upheld by the Sindh High Court which dismissed a petition, arguing that it will have an extremely adverse impact, even leading to the closure of businesses.
Labour expert Iftikhar Ahmed says the Wageindicator Foundation has projected Rs28,700 as the minimum pay for a standard family.
The Court also directed the Sindh government to ensure that all unskilled workers, men and women, receive the minimum wage including those in the informal sector.
Sindh has announced that private school teachers will be eligible for the minimum wage. Many teachers, particularly women, are reportedly paid as low as Rs5,000 while the schools charge fat fees. The schools have been warned that their premises will be sealed if they violate the directive.
However, the government’s role is currently restricted to minimum wage announcements which are not effectively implemented.
In the labour market dominated by employers, critics say losses of firms are socialised but gains are privatised.
Producing low value-added goods to meet the needs of low-income groups in developed economies, the export-oriented manufacturing sector prefers to employ low-paid workers. Instead of increasing productivity, it has relied on the stimulus provided by successive governments including the continuous devaluation of the rupee to boost foreign sales.
In some ways, the situation is changing in many countries including Pakistan.
The emergence of the ‘new economy’ job options have increased for some — if not satisfied, skilled workers are more mobile, often opting for self-employment or switching jobs, says Pakistan Business Council CEO, Ehsan Malik.
As the impact of Covid-19 subsides and employment choices increase, he says, the employers are paying competitive rewards to attract and retain quality talents.
Similarly, in the United States, companies report that they are facing manpower shortages because the retrenched workers refuse to work on previous salaries and often do not even accept the enhanced wages offered to them. The minimum wage has become a major issue in the most developed economy.
In Europe, President of the European Commission Ursula von der Leyen wants all workers to be covered by a minimum wage, whether through national law or collective agreement.
This is in sharp contrast to the global corporate view that increasing minimum wages, or having a minimum wage, actually increases unemployment. To quote former Pakistan’s chief economist Pervez Tahir these religiously long-held notions have been demolished by the evidence presented by a serious academic. For his empirical contributions to labour economics’ scholar David Card was recently awarded the Nobel Prize — shared by Joshua Angrist and Guido W. Imben.
They did not theorise but challenged the received wisdom on credible evidence, says Mr Tahir and adds: their study demonstrated that the higher minimum wage had little effect on employment. Actually, there was some increase. Similarly, natural research dispelled the notion that unemployment benefits disincentives job search. In other words, Mr Tahir explains that businesses continued to grow, despite the higher wages cost.
Published in Dawn, The Business and Finance Weekly, November 29th, 2021