Jobless growth, really?

Kazi Iqbal and Md Nahid Ferdous Pabon | Published: May 23, 2018 21:01:57 | Updated: May 26, 2018 20:47:05

The growth narrative of a developing country takes a long time to assume a mature shape and this is more true for a country like Bangladesh, which is in transition and the sources of growth are multiple and complex. Ideally, a large body of research outputs are put together to gain insight into particular economic issues for a prolonged period, and these accumulated insights, knowledge and wisdom create the narrative. Sometimes it is difficult to fix this narrative, as popular stories may overshadow the findings of rigorous research. Of late, it has been observed that economic growth is deemed as 'jobless,' done so repeatedly that it is about to occupy a place in the growth narrative of present-day Bangladesh. We think this issue should be scrutinized further before it occupies a permanent place in our discourse.

In layman's jargon, 'Jobless Growth' refers to the situation when a country's income keeps growing without expansion of jobs or with little job creation. Clearly, recent data on growth and employment do not indicate any such situation. According to the Labour Force Survey (LFS), 1.4 million new jobs were created between 2013 and 2015-16, and another 1.3 million were created between 2015-16 and 2016-17.  In terms of  per centage change, these figures translate to 1.0 per cent annual increase in number of jobs between 2013 and 2015-16, and 2.2 per cent annual increase between 2015-16 and 2016-17.

As a natural process of growth, labour force in agriculture tends to move to more productive services and industries sectors. There is clear evidence that it is not the reallocation of labour among the sectors only, rather new jobs have been created, thanks to the industries and services sectors (Figure 1). The growth of employment in services sector was about 7.7  per cent compared to 1.6  per cent in the industries sector during the period between 2015-16 and 2016-17, resulting in a net increase of 2.2  per cent in employment. Generally, the productivity of services sector is lower than that of industry, implying that the services sector requires higher number of workers than industries for the production of same output. Hence, higher growth of services sector leads to creation of greater number of jobs in the economy.

There has been a reduction of employment in the manufacturing sector in absolute numbers and the proponents of 'jobless growth' highlight these numbers, ignoring the broader picture. In fact, the reduction of manufacturing jobs is compensated by a steep rise in construction sector jobs, registering about 17 per cent annual increase from 2013. If we look at the micro-data such as Census of Manufacturing Industry (CMI) and Sample of Manufacturing Industry (SMI) conducted by BBS, we observe that the elasticity of manufacturing employment with respect to output has been increasing over time (Figure 2). Though the data is outdated (the last SMI was published in 2012), it says something about the trend of manufacturing jobs.

Now the question is, how large is this increase when the economy has been growing at a rate of over 6.0  per cent during this period? To answer it, we need to look at the elasticity of employment with respect to growth. It shows the increase of jobs in  percentage if output increases by one  per cent. The income elasticity of job creation was about 0.17 during the period 2013 to 2015-16 (Figure 3). This figure increased to 0.30 during the period 2015-16 to 2016-17. It implies that one  per cent increase in income led to about 0.17  per cent and 0.30  per cent annual increases in jobs during the first and second periods respectively, indicating that growth has become more pro-jobs now.

Looking at the number of jobs created, however, might lead to misleading conclusion as the number of people entering the labour force within a certain period of time might exceed the number of new jobs created. Comparison of the number of new jobs relative to the size of total working age population gives us a better picture.  In Bangladesh, employed persons as a  percentage of total working age population increased from 54.6 in 2013 to 55.8 in 2016-17. This provides clear evidence that job creation has neither been stagnant nor shrinking. Rather, the job creation rate has been expanding at a greater pace than the working age population.

Theoretically, it is hard to rationalise the 'jobless growth' phenomenon, given the stage of development where Bangladesh is currently in. If the growth has been 'jobless', something else other than labour must have been driving the growth. What is the new driver, then? We know output is produced by labour and capital machineries, and productivity captures how efficiently these two factors of production are used. If the role of labour is diminished, either capital or productivity must have increased to ensure higher growth. Recent BIDS study on aggregate productivity and its determinants does not lend any support to any increase in Total Factor Productivity (TFP). Any rigorous evidence that technological advancement in the industries sector is labour-replacing is also almost absent in any literature.

Kazi Iqbal is Senior Research Fellow, Bangladesh Institute of Development Studies (BIDS) 

Md. Nahid Ferdous Pabon is Research Associate, BIDS.

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