Countering labour market imbalances in Bangladesh

 Mustafa K Mujeri |  March 30, 2019 12:00:00

Market-oriented structural reforms in Bangladesh–which begun in the late 1980s and intensified since the 1990s–have put the economy on a higher growth path with annual GDP (gross domestic product) growth rate crossing 8.0 per cent in recent years. But concerns exist relating to the outcome in the labour market which has not improved much for the large segment of the labour force. There has been slow growth of employment in the formal sector-where the ‘good’ jobs exist.

According to the Labour Force Survey (LFS) of the Bangladesh Bureau of Statistics (BBS), the share of the formal sector in total employment was 13.7 per cent in 2010; and this rose to only 14.9 per cent in 2016-17. At the same time, jobs in the formal sector have themselves been undergoing a change, with contract labour getting a growing share of employment. More broadly, workers on daily or periodic contracts have increased their share in formal employment, which some observers describe as the ‘informalisation of formal employment’ in Bangladesh.

One important challenge for Bangladesh is to deal with slow job creation in some sectors; along with meeting the shortage of skills in others. These imbalances need to be urgently addressed. While economic growth has been impressive over the last few years, job creation has been relatively slow. During the first ten years of the 2000s, the average GDP growth rate was about 6.2 per cent per year and, on average, 1.4 million new labourers were employed every year. On the other hand, yearly GDP growth rate rose to 6.6 per cent during 2010-2017, but employment creation declined to less than one million per year.

Whether or not job creation has slowed down in recent years may be debated; but recent evidence from multiple sources seems to indicate that job opportunities in Bangladesh has become somewhat limited; especially job creation in the organised (especially manufacturing) sector has shown a falling trend in recent years. Furthermore, the share of regular workers with any form of social security seems to have declined.

In Bangladesh, the unemployment rate is fairly low (4.2 per cent in 2016-17). But the real problems are underemployment and poor job quality. While nobody doubts the seriousness of these problems, the unemployment issue cannot be totally disregarded. The calculation of the unemployment rate does not factor in Bangladesh’s low labour force participation rate-the proportion of working-age people looking for jobs or working. It stands at 56.5 per cent in 2016-17, compared with 57.6 per cent in the early 2000s (which is around 70 per cent in countries like Brazil, China and Indonesia).

The government needs to consider new and innovative ideas for job creation, including labour law reforms. Several labour-intensive sectors, such as apparel, electronics, food processing, gems and jewellery, financial services, and tourism may be targeted where employment will be encouraged. Furthermore, the policies should emphasise the role of exports in job creation and expedite the establishment of special economic zones (SEZs) and consider establishing coastal employment zones (CEZs), which need to be provided with relatively flexible regulatory schemes for land and labour.

The tariffs on entry-level labour-intensive products should be designed to grasp the natural comparative advantage of Bangladesh. The national labour-law reforms should allow workers to be employed on fixed-term contracts at wages and benefits similar to those of permanent workers, thereby providing formal employers flexibility in responding to demand and technology shocks to compete with their foreign rivals.

Bangladesh faces job shortages in the aggregate, but not in every sector. There are some real imbalances across the economy, with some key sectors facing a shortage of skills and personnel. Such shortages are primarily in many social services and in highly skilled professions. The quality of these services, especially those available to low-income, remote and rural households, is shockingly low owing to the scarcity of quality doctors, nurses and teachers.

While robotisation may displace jobs in sectors facing adequate labour supply, it can be quite useful in filling the gap created by the shortage, if any, of skilled personnel. In this respect, Bangladesh may consider adopting a strategy based on the principle of filling up the skill gap. For example, specialised software can be used to diagnose diseases (and prescribing appropriate medications) or grading students’ written work and providing feedback, thereby enabling large-scale online education.

So far, Bangladesh’s information technology (IT) sector has not been able to create a large number of high-skilled jobs. In future, the support and maintenance services for AI, rather than IT, may be in demand, given that IT support itself is being robotised. For its future growth, the IT (and AI) sector needs to reinvent and position itself in a more innovative role, which will require considerable capacity building. Bangladesh should adopt a well-designed strategy in this respect which, among others, takes into consideration any job displacement threats from AI.

Globally, the demand for skill is rising as a result of automation. The challenge lies in retraining the workforce and providing workers with the new skills they need as quickly as they are required-a big challenge given the rapid advances in automation technologies. The share of next-generation jobs, in fields such as cyber security, mobile app development, new user interfaces, social media, data science, and platform engineering is rising. All these jobs require new skills, including the ability to create, manage, or interpret big data analytics, cloud and cyber security services, service delivery automation, robotics, artificial intelligence, machine learning, and natural language processing.

To expand gainful employment in the era of rising automation implies that not just IT but every sector, including manufacturing, trade, health care, and financial services, will have to prepare for massive retraining and skill building.

As internet penetration and data usage grow, there will be an explosion of digitally enabled ecosystems and growth in work opportunities across sectors such as retail, transport, financial services and health care. Digital ecosystems are creating new opportunities for better quality work and more remunerative work, for a segment of the workforce. For example, cab-hailing app-based companies such as Uber have a rapidly rising number of vehicles in operation which is estimated at 100,000 in Dhaka and Chattogram in 2018; and every week nearly 2,500 drivers get registered with Uber. This means commensurate growth in work opportunities.

E-commerce players, including companies as well as a host of category specialists including furniture manufacturers, fashion retailers and food delivery businesses, are creating new types of jobs in areas that have so far been less covered by the formal economy of Bangladesh. There are 8,000 e-commerce pages in Facebook alone. In 2016, the government opened e-commerce sites for every district in the country. Since 2014, twenty companies have started as the nation’s digital marketplace emerges. Unlike traditional marketing, digital marketing involves strategies designed to engage consumers and drive brand conversation on various digital platforms.

Digital financial services (DFS) in Bangladesh have been fuelled by the government’s financial inclusion drive, and explosive growth of digital payments infrastructure which have contributed to create thousands of improved work opportunities. Banking correspondents and agent banking networks acting as customer service points for basic banking services in underserved regions are good examples. Such growth translates into additional work and/or incremental income-earning opportunities for existing workers in other occupations. Similarly, micro-entrepreneurship is a rapidly spreading trend towards independent work which is being enabled by the government’s small entrepreneur financing programmes.

At present, there are serious imbalances, varying across sectors, between the availability of jobs and the supply of skills and workers. While good ideas to deal with them exist both within and outside the government, implementation is the key. This is where the government often does not perform well. Some segments of the country’s workforce have been reaping benefits from strong GDP growth, increasing shift into non-farm employment and the country’s high-tech skills.

The labour force in Bangladesh aspires to higher pay, better and more productive working conditions, and safer, cleaner, and more stimulating work environment. A new emphasis on gainful employment would help the labour to meet these aspirations. It will require a conscious effort on the part of the government to measure employment more holistically, target spending on specific initiatives, and change regulation of private-sector investment and innovation to remove barriers to gainful employment. While the policy steps are no doubt challenging, these are necessary to create a more fulfilled, better rewarded, and more productive labour force in Bangladesh.

Mustafa K Mujeri is Executive Director, Institute for Inclusive Finance and Development (InM).