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Pre-budget thoughts: Focus on employment issue

| Updated: October 22, 2017 20:00:10

Pre-budget thoughts: Focus on employment issue

Economics is all about choices. The theory of social choice by Kenneth J Arrow has played a revolutionary role in economics. But even without going to the rigorous theoretical analysis it can be said that we make numerous decisions and exert choices which affect the lives of many. The choices among contrasting policies become glaring in the days preceding the announcement of national budget every year. Suggestions on budgetary priorities come from various directions which often may push forward contrasting agenda.
There are a few selected issues related to employment growth which are of general concern for their linkages with the national budget formulation process in general and the forthcoming budget (2017-18) in particular.
WHY 'EMPLOYMENT BUDGET': During the last two decades, Bangladesh has achieved significant progress in terms of both economic growth and social change. The country has experienced a rise of per capita income and has recently entered the list of lower middle-income countries.  Bangladesh's progress in the sphere of social development has been acclaimed internationally.
The country's achievements in terms of acceleration of GDP (gross domestic product) growth has taken place despite its poor resource base. A growing labour force and existence of surplus labour in the traditional sector have helped the growth process. The dual sector theory of development has outlined that the development of densely-populated economies can take place through absorption of surplus labour in modern sectors
Further acceleration of GDP growth of Bangladesh can be difficult due to a number of constraints. The constraints of high population density and limited natural resources are accentuated by unplanned use of resources. Constraints of energy and physical infrastructure and socio-political environment discourage investment, especially in activities with long gestation gap. Private investment as a share of GDP has been stagnating during the last decade or so.    In the backdrop of these problems, the acceleration of GDP growth requires that the growing labour force is utilised through labour-intensive growth.
In addition to its contribution for boosting GDP growth, employment growth can help raise the earnings of people dependant on labour income and thus halt the growing inequality of income and create a scope for more inclusive growth. These considerations have resulted in inclusion of 'decent employment for all' as a goal in the Sustainable Development Goal (SDG) agenda. Bangladesh has made commitment to include SDG in its development agenda and therefore concrete steps for achieving this goal are desirable. The coming budget cannot, therefore, bypass the employment growth issue and focus only on GDP growth.  The following are some suggestions on how to incorporate the goals of employment growth in the coming budget.
Before the suggestions are presented, a mention of lack of attention to the employment issue in recent budgets is needed. During the last three years, the budget document did not include any statement on employment growth issue or the implications of budgetary measures for generating employment. There was no mention of projected employment during the year. However, earlier budgets used to include projection of total employment during a fiscal year (FY). This practice has been discontinued. It is proposed that not only employment growth needs more attention but also should be at the centre-point of growth strategies.
EMPLOYMENT GROWTH AND BUDGET 2017-18: The budget 2017-18 should
n adopt goals and strategies for employment growth during the fiscal year;
n provide accounts of job creation and job loss as a result of budgetary steps, and especially for the mega projects;
n provide a breakdown of total job creation by sector, type (regular-casual; formal-informal etc).
Adoption of goals and strategies for employment growth is easier said than done. Employment in a market- oriented economy like Bangladesh takes place mostly in the private sector which can only indirectly be influenced by the government policies and provisions. Nonetheless, it does not mean that choosing and implementing policy guidelines will not be effective. Taxes and other forms of incentives can help redirect investments in labour- intensive sectors and thus help job creation. In the following discussion, the example of readymade garment (RMG) sector is discussed to highlight this proposition.
Before moving on to this discussion, a specific type of employment growth linked to social protection programmes directly linked to budgetary allocations can be mentioned. Bangladesh has been implementing a wide range of social protection-type Active Labour Market Programmes, which generate employment for workers from poor households. Although these programmes suffer from targeting error, the positive impacts of most of the programmes in the form of employment and income for the poor households have been recognised. Therefore, these should continue with an emphasis on raising efficiency of targeting. Moreover, proliferation of programmes often results in duplication, overlapping and related inefficiency. So rationalisation of these programmes must be pursued. In addition, expansion of programmes should focus on the poorer regions.
EMPLOYMENT GROWTH IN RMG: Total employment in RMG has been stagnating at 4 million during the last three years. During 2010-2016 period, the total number of enterprises in operation has gone through a decline from 5,063 to 4,325. Workers per enterprise increased from 710 to 924. Structural changes in the sector include scaling up of investment and upgrading of technology. As a result, export per worker increased substantially from US$ 2,718 in 2010 to US$ 7,023 in 2016.
Reasons behind stagnation of RMG employment are as follows:
n Use of  modern machineries leading to higher capital intensity in large factories and
n small and medium firms' inability to conform to compliance standards and their exit leading to decline in the number of enterprises in operation.
According to the large enterprises, future growth of labour demand will be slower in the existing enterprises. Workers' comments are worth listening to in this context. The recent slowdown of growth of labour demand has been reported in the following discussions with the workers:
n They were almost unanimous that employment opportunity for unskilled workers in this sector is shrinking.
n Evidences they cite include: there are less ads at factory gates; new helpers are not joining their factories etc.
n To quote their comment, "Since they engage fewer workers, we face more pressure of work". "These days one has to bribe the middlemen to get a job of helper in RMG."
n Provision of incentives for achievement of compliance by small and medium enterprises as a short-run measure.
n Fiscal incentives for RMG should be linked to labour intensity of a unit.
n In the medium and longer term, diversification of exports must be seriously pursued.
SUPPLY SIDE OF EMPLOYMENT GROWTH:  Demand for labour must be matched by expansion of supply. Growth of labour supply in Bangladesh can be achieved through a rise of women's labour force participation rate (LFPR) since at present this rate is quite low. Compared to other South Asian countries, Bangladesh has a lower female LFPR. Rise of female LFPR can be ensured through several policy measures. Improvement of employability through better quality education and training can be most effective.
In addition, female labour supply may be increased through provision of services and in the context of budgetary allocations. A specific service is being mentioned here.  One of the most important service required for raising female labour supply is child care. In this respect, the labour law provides the requirement that units employing more than 40 women will provide child care facility. Although the private sector enterprises as well some NGO facilities are being created, quality of these services leaves much to be desired. Reasons of poor quality services include a lack of social awareness that this service can help working mothers and also the future society.
To improve the quality of child care, a few steps may be adopted. To set the standard, the government can set up a few centres in areas with concentration of industrial units. There is also need for training of child care providers. In fact, if properly planned and backed by investment on infrastructure and training, this sub-sector can generate additional employment demand as well.
Dr Rushidan Islam Rahman is Executive Chairperson, Centre for Development and Employment Research (CDER)

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