PAKISTAN’S unemployment crisis is no longer just another demographic concern; it is already restricting growth. So when World Bank president Ajay Banga said that employment creation will remain a “binding constraint on growth” over the long term, he meant that, instead of being a problem to be dealt with later, the lack of jobs will limit how fast the economy can grow.

His warning that the country must create some 30m jobs over the next decade shows the scale of the challenge. In fact, current growth patterns are moving in the opposite direction as the data shows. The average annual GDP growth of just 1.7pc between 2022 and 2025, combined with high inflation, has eroded real incomes and weakened labour demand. Agriculture, manufacturing, construction and wholesale and retail trade that traditionally absorb the bulk of the workforce and together employ more than three-quarters of workers have experienced a decline. Manufacturing, construction, and trade have all contracted, shrinking the economy’s ability to produce jobs when millions of young people are entering the labour market each year.

The consequences are visible. The latest Labour Force Survey shows that our unemployment rate has risen to 7.1pc in FY25, the highest level in 21 years. Other estimates present an even bleaker picture. The Population and Housing Census 2023 puts the unemployment rate at 22pc, which means the youth find no space to work and prefer to leave the country if they find an opportunity.

Variations in the estimated extent of the problem apart, the underlying trend is unmistakable: job creation lags far behind workers’ expansion. With the labour force growing by roughly 3pc annually, sustained growth of at least 5pc or higher is necessary to prevent further deterioration in labour market conditions. This mismatch between growing labour supply and shrinking labour demand explains why employment has become, as Mr Banga described, Pakistan’s “North Star” policy challenge.

Without rapid job expansion, the demographic dividend risks turning into a liability, as seen in outward migration and social stress. The record outflow of skilled professionals going abroad in a single year signals that the employment problem is not limited to low-skilled workers; it is affecting highly trained human capital as well.

Equally troubling is the interaction between weak employment growth and declining real incomes. Cumulative inflation in recent years has outpaced income gains, resulting in a fall in real per capita household income and a rise in poverty risks. At the same time, inequality trends suggest that whatever limited growth has occurred has been unevenly distributed. When growth is both slow and unequal, the labour market becomes the primary channel through which economic stress is transmitted across society.

Published in Dawn, February 9th, 2026