Two ends and no means

LAHORE: Pakistan’s labour market has been weak for the past three years as the government chose to ignore the distress of companies gradually cutting jobs in order to trim costs and survive.

Cost of doing business is constantly rising while demand for many goods and services has declined. Only the demand for food is on the rise but the consumption is subdued due to high prices. Investors have very limited visibility into the future and have a great degree of uncertainty, so they just want to sit steady and be conservative in hiring. Some enterprises have reduced the workforce but even those operating comfortably are imposing hiring freezes. The vacant positions are not being filled by them.

The unemployment in the country has increased more due to sharply reduced creation of new jobs then the retrenchments by industries and firms due to economic recession that calls for distinct policy strategies for reducing unemployment. Layoffs have increased noticeably over the past one year due to the pandemic. Tourism industry has been hit hard. Occupancy in most of the hotels is below survival level.

The restaurant business has crumbled. Marriage halls remained closed for most of the year. Even when they were allowed to operate they operated at half capacity due to SOPs of Covid-19. Industrial sector has been allowed to operate even during pandemic but entrepreneurs are operating with limited workers.

The economic downturn has not yet stopped which is evident from the absence of investment in most industrial sectors. The dynamics of the job market are such that when the investors have confidence in the future they expand their businesses. Many experienced hands in such times switch their jobs on better packages. At the same time the new industrialisation creates a large number of jobs. The main reason that unemployment rises during economic downturns is that job creation falls, while the labour force continues to grow, making available jobs scarcer.

The layoffs are flashed by the media but the inability of the economy to create new jobs goes unnoticed. Pakistan needs at least two million jobs every year to absorb the new workforce that enters the job market.

Businesses and entrepreneurs have cut back on investment, so they create fewer jobs. Had job creation remained stable during the past three years it would have created two million net jobs despite increased layoffs. It is a drop in job creation, not a rise in job losses that accounts for the majority of unemployment that increases during recessions.

In vibrant economies industries continually expand and contract while entrepreneurs create new companies and non competitive firms go out of business. Workers move between jobs frequently as this occurs. In good times and bad, the number of jobs created or lost each in a given period is the difference between the number of workers starting new jobs and the number of workers leaving old ones.

Changes in either job loss or job creation rates affect unemployment. Unemployment obviously rises when employees leave their jobs--either voluntarily or involuntarily--directly increasing the number of job seekers. But unemployment also rises when job creation falls. Present regime adopted populist policies during recessions that further dampened the will of entrepreneurs to create new jobs. It is absolutely essential that the governments utilise available resources prudently when the economy is in distress. Preference should have been given to development and strengthening infrastructure projects. Instead the non-development expenses increased massively. Recession is always more pronounced in countries where the resources are misused or spent in the wrong direction.

In uncertain periods like the one we are going through businesses resort to pruning their workforce as much as they can. Still they are worried about the future of the economy. Economic decisions are ignorantly delayed and by the time they are taken new problems arise such as increase in utility rates, increase in inflation and political uncertainty in the country. Businesses have grown wary about the future of the economy. The situation has reached a stage where the deterioration of the job market is now emerging as a driver of economic distress.

Fortunately the construction sector has responded to the package announced by this government. It has absorbed a large number of unskilled labour forces. But the jobs are shrinking in the manufacturing sectors for more than two years. The job losses have started impacting the services sector as Covid-19 continues to play havoc in the country for more than a year. Services companies are slashing temporary jobs. The leisure and hospitality industry has cut jobs, as the domestic tourism declined bringing miseries for the people of the northern areas which are the hubs of domestic tourism.