EMPLOYMENT – GROWTH NEXUS (JOBLESS GROWTH)

Abstract

The slow growth in employment during the present and past few economic recoveries around the world has generated interest among economic researchers in the phenomenon of jobless growth. In developing countries the potential of economic growth to generate employment has often been questioned. The present study is assesses this potential in Pakistan which has relied mainly on economic growth in the past to generate employment. Using a production function, an employment demand model is derived in which Gross Domestic Product (GDP) is the main explanatory variable. This model is estimated using annual time series data for the period 1974-2008, first at the national level and then by pooling data for the major sectors of the economy. Econometric estimates of the parameters of this model have been used to calculate a threshold level of GDP growth below which growth in employment is expected to be stagnant. The analysis of national data indicates that the economic growth in Pakistan has generally been slower than the level of growth required to generate employment growth. This result is mainly attributed to below threshold level of growth in the manufacturing sector of the economy which is regarded as one of the main engines of economic growth by economic planners in Pakistan. Among the potential factors behind the above results are labour productivity, sectoral shifts in the labour market, and the macroeconomic policies of the last three decades. Directions for future research and policy implications of results are also discussed in this study.