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Society
Unemployment Situation in Pakistan

By Samina Khalil and Rao Noman Saleem
Applied Economics Research Centre

July 05 - 11,1999

Society
Unemployment Situation
in Pakistan

Column
For the record
 
Politics&Policy
SAARC: UNIQUE FEATURE

Unemployment is a central problem because when unemployment is high, resources are wasted and people's incomes are depressed; during such periods, economic distress also spills over to affect people's emotions and family lives.

Now we see that in Pakistan what is the situation of unemployment and what are its economic and social impacts.

In Pakistan labour force include all persons who are of ten years and above, and during the period are without work, currently available for work and seeking for work. On the basis of the existing population of 142.87 millions with Labour force participation rate of 27.46 percent, the total labour force comes to 39.24 million. According to this about 2.4 million persons of labour force were estimated as unemployed in 1999, as construction and transport sectors have absorbed 11.2 percent, 6.8 percent and 5.7 percent, compared to 10.5 percent, 7.2 percent and 5.0 percent respectively in 1994-95.

First of all we see the Sectoral employed Labour force.

According to Labour Force Survey 1996-97, the rate of open unemployment was 6.1 percent and 5.4 percent as per Labour Force Survey of 1994-95. This indicates that rate of unemployment has increased between these two surveys by 0.7 percent officially but unofficially unemployment is much larger than this rate.

Often it is perceived that unemployment rate of rural areas is greater because in rural areas there are less chances of employment as compared to urban areas where there are more chances of employment due to more industries (by james nelson). So now we see the annual unemployed labour force by urban/rural areas since 1993 to 1999, which is given in table below:

It is obvious from the above table that in Pakistan unemployment rate is increasing in both rural and urban areas in absolute as well as in percentage terms. Unemployment rate in rural areas is greater as compared to Urban areas. Because of industries there are more chances of employment in Urban areas. In Rural areas businessmen are setting up industries due to which now rural people seek Manufacturing sector for employment . As in rural areas there is no proper source of earnings due to which unemployment rate is increasing. As agriculture sector is not absorbing them due to adaptation of mechanical instruments and bad conditions. Small scale industries are not working efficiently due to worse economic conditions. So Rural people are not finding proper source of earning. It is clear from Percentage distribution of employed persons by major industries division.

Economic impact

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.

Unemployment is classified into three categories (a) Frictional unemployment (workers who are simply moving between jobs (b) structural unemployment (workers who are in regions or industries that are in persistent slump) (c) cyclical unemployment (workers who laid off when the overall economy suffers a downturn. In Pakistan unemployment is of structural and cyclical nature.

Understanding the sources of unemployment has proved one of the major challenges of modern macroeconomics. Voluntary unemployment may be or when qualified people chose not to work out the going wage rate unemployment occur. The key element in understanding involuntary unemployment is the inflexibility of wages in the face of economic shocks. The same situation is in Pakistan, inflexibility arises because of costs involved in administering the compensation system.

The upward creep in the natural rate arises mainly because of demographic trends particularly the higher proportion of teenagers in the labour force. In addition, government policies are also increasing unemployment rate i.e. Golden Shake Hand, ban on jobs increasing unemployment rate.

Role of Government

The government is trying to reduce the unemployment rate. Under Prime Minister's Self Employment Scheme, different Banks and Small Business Finance Corporations are extending loans to unemployed youths and skilled professionals having diploma/degree and business experience. Loans ranging from Rs.10,000 to be Rs.500,000 for small business and from Rs.500,000 to Rs.5,000,000 for small industries etc. Small Business Finance Corporation is playing role in reducing unemployment. Upto March 1999, the Small Business Finance Corporation has sanctioned Rs.2,208.4 million, against amounting to Rs.1,551.95 million have been disbursed to 9,383 persons.

The SBFC has generated employment for 28,149 persons under the Prime Minister's Self-Employment Scheme upto March 31, 1999. A Small and Medium Enterprises Development (SMEDA) has been setup for growth and development of self-employment schemes in Pakistan.

During the year 1998 about 104,000 persons have been sent abroad for employment under Govt. overseas employment schemes.

The liberal economic and fiscal policies of the government may reduce unemployment rate because they can create new job opportunities and business in the country. There is a need to announce an economic revival package to stimulate investment and industrial production, boost exports, broaden the tax bases and lower tariffs.

In addition, construction of additional motorways and setting up of industrial zones throughout the country would also generate new opportunities for employment in the country.

Suggestions

1) Govt. should make efforts to push economic growth process.

For this purpose Economic Revival Package should announce for the revival of industries sector, to stimulate production and investment.

2) Govt. should seriously try to boost exports through broadening the tax base and lowering tariffs.

3) Govt. should announce a package for the development of agriculture sector .

4) Beside this a number of fiscal and monetary measures should take to attract industrialists and particularly foreign investment.

5) More Technical and Vocational training facilities should be provided. In this way unemployed people will get the chance to enhance their skills and become able to earn reasonable income.

6) With a view to reduce educate unemployment, self-employment scheme should be encouraged in true manners.

 (Figures in Millions)

Sector 1994-95 1997-98(E) 1998-99(E)
Agriculture 15.56 16.90 17.37
Mining & Manuf. 03.49 03.79 3.90
Construction 02.40 02.60 2.67
Trade 04.82 05.24 5.39
Transport 01.69 01.83 1.89
Comm.Soc.Ser. 04.75 05.16 5.30
Others 00.55 00.60 0.62
Total 33.26 36.12 37.14

Source: Economic Survey 1997-98.

 (Figures in Millions)

Unemployment Labour Force Unemployment Rate(%)

Year Population Total Urban Rural Total Urban Rural

1993 116.74 1.53 0.54 0.99 4.73 5.88 4.28
1994 119.39 1.61 0.62 0.99 4.84 6.51 4.22
1995 122.36 1.80 0.68 1.12 5.37 6.90 4.80
1996 125.38 1.85 0.71 1.14 5.37 6.90 4.80
1997 128.42 2.25 0.83 1.42 6.10 7.10 5.70
1998 131.51 2.31 0.86 1.45 6.10 7.10 5.70
1999 134.51 2.36 0.89 1.47 6.10 7.10 5.70

Source: Labour Force Survey 1992-93 to 1996-97.