Strategies to address Covid-19 induced labour market challenges

Covid-19 deeply affected the labour market in Bangladesh. It intensified some of the existing challenges and brought about a new set of problems. A large number of people either lost employment or income and many are also experiencing intense job insecurity and uncertainty.

The labour market was facing several challenges even before Covid-19. Though the Bangladesh economy has undergone significant structural changes over the last five decades, agriculture still holds the largest share of total employment. Despite high economic growth, there has been slow growth in job creation in recent years. With the changing nature of manufacturing and services sectors—leaning towards automation—job creation in these sectors remains a big challenge. Furthermore, the share of informal employment in total employment in Bangladesh remains well above 85 percent, which is an immense challenge to making significant headway in ensuring decent jobs.

It is noteworthy that, over the past decade, the labour force participation (LFP) rate of females has remained stagnant at around 35 percent. Also, though the country is passing through the phase of the demographic dividend, the share of youth "not in education, economic activities and training (NEET)" is high, and the youth unemployment rate is excessive. There is a vicious cycle of low-wage, low-skill and low productivity in the labour market. While the enhancement of labour productivity critically depends on both quality health and education services, Bangladesh lags significantly in ensuring quality health and education for all. The public expenditures on health and education as percentages of GDP in Bangladesh are very low, which deter enhancing labour productivity.

Other salient employment challenges include persistence of poor working condition, a high degree of rural-urban migration with an enormous concentration of migrated labour in the urban informal services sectors, skill mismatch in the labour market, and the outward migration of a high concentration of low-skilled labour.

There is no denying that the labour market and employment challenges are closely linked to the acceleration and sustenance of economic growth, enhancing the quality of economic growth and economic diversification. Though the country experienced robust economic growth over the last decade, there has not been substantial economic diversification. However, economic diversification is one of the most critical facets for job creation and provision of quality employment. The failure of a necessary and productive economic diversification has persisted in several labour market challenges in Bangladesh. Even though the private sector plays the most pivotal role in job creation, the private sector's investment-to-GDP ratio has remained stagnant over the last decade. Energising private sector investment thus remains a precondition for addressing many labour market challenges, as discussed above.

The levels and magnitudes of uncertainty brought by Covid-19 in the labour market are enormous. Covid-19 has also led to high adjustment costs both at the household and firm levels. In pre-pandemic time, with the mobility of labour, job losses in one sector were compensated by job gains in other sectors; for example, either through the movements from agriculture to industry and services or through movements within the sub-sectors of agriculture, industry and services. But, during the pandemic, options for such adjustments and relocation of labour are limited and uncertain.

There are grave future implications of the current labour market challenges. The recovery in the labour market is dependent on the recovery of the overall economy. However, the economic recovery process has remained slow and disrupted. The economic recovery is also happening at the cost of inter-generational trade-off with high adjustment costs. The pandemic forced many people, with uncertain prospects of jobs and earnings, to stress on their current survival rather than on their human capital development for the future. Also, when schools and educational facilities have remained closed for months, there is a high risk that students from distressed families will be forced out of the education system permanently. Moreover, while the micro, small and medium enterprises (MSMEs) are the prime victims of the pandemic, their recoveries have remained highly uncertain. Many self-employed in the MSMEs perhaps permanently lost their capital. Also, wage employment is suffering as economic activities are yet to recover.

All this may increase the existing high levels of youth unemployment and youth NEET. As shreds of evidence are unfolding, females are more likely to be affected than their male counterparts.

So, what should be done?

First, acknowledging and understanding the labour market challenges is a precondition to taking any counter-measures. The Eighth Five Year Plan and the government's other policy documents barely address the existing and Covid-19 induced labour market challenges in Bangladesh. However, there is a need to undertake a comprehensive approach linking policies and programmes for economic and social recoveries. Critical emphasis should be on the recovery of the MSMEs. Action plans need to be developed and implemented through the relevant ministries. 

Second, acknowledging that the government's existing policies and programmes are inadequate to address the Covid-19 induced labour market challenges. The government's actions related to the current labour market challenges have remained slow and insufficient. In particular, the new-poor, experiencing highly disrupted engagements in the labour market, are not covered in the existing social safety net programmes. Therefore, the government should introduce new social safety net programmes targeting the labour market. In this context, the government can undertake the programmes of employment guarantee schemes for the vulnerable population.

Third, the government should form a Labour and Employment Commission to assess the current unprecedented situation and suggest necessary measures.

Dr Selim Raihan is Professor, Department of Economics, University of Dhaka, Bangladesh, and Executive Director, South Asian Network on Economic Modeling (SANEM).

Email: selim.raihan@gmail.com