Decline in unemployment: Let’s pause before we celebrate

In developing countries, a decline in unemployment through job creation is desired because it ensures both economic growth and a rise in the welfare of the population dependent on income from labour. In Bangladesh, job creation can have a positive impact on wages and minimise the impact of inflation on people's living standards. In fact, economics says that a rise in inflation will have a negative impact on the unemployment rate. This article examines the changes in unemployment figures and other related indicators of Bangladesh's labour market during the first two quarters of 2023, and reflects on the implications of these changes.

For the last few quarters, the Bangladesh Bureau of Statistics (BBS) has been conducting Quarterly Labour Force Surveys (QLFS) and publishing summary reports. A few observations based on the last few rounds of QLFS, especially those related to employment and unemployment, can be highlighted to gauge the full implication of these changes.

Data for the two quarters of 2023 show that the number of unemployed individuals decreased by 90,000 between January-March and April-June. However, the number of employed persons in these two quarters also experienced a decline, from 71.10 million in January-March to 70.71 million in April-June.

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These two observations imply that those who may have been counted as unemployed left the labour force altogether. According to the internationally accepted definition used by the BBS, a person would be considered unemployed if they did not work during the reference period and was engaged in active search for employment (for pay or profit). Persons who are not employed and give up job hunting, knowing that jobs are not available, are described as "discouraged workers."

When they re-enter the job search, they have to compete with new entrants in the labour force, as the population of those appropriate for the labour force (15 years and above) is growing at a rate of about 1.4 percent annually.

Sector-wise disaggregation of data shows that employment has shrunk in both agriculture and industry. A decline of industrial employment is less likely to be a seasonal phenomenon. Moreover, employment in industry in April-June 2023 was 12.12 million, compared to 12.4 million in the same quarter in 2017, indicating a significant decline over a five-year period. The industry sector posted high GDP growth in most years but still failed to contribute to employment expansion. This should be viewed with concern.

To factor out seasonality, point-to-point comparisons are drawn for many other macroeconomic indicators (such as GDP growth and inflation). But this may be difficult to do for employment growth as the working age population is also growing. Assuming that 15 percent of them remain in school, about one million young persons enter the labour force every year. Even though total employment rose by 0.27 million between April-June 2022 and April-June 2023, about 0.7 million are yet to find employment or join the ranks of unemployed persons. Currently, they are considered "discouraged workers" and are not counted as being in the labour force.

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Indeed, the limitations of the current definition of unemployment generates unrealistically low unemployment figures for Bangladesh.

One may wonder what the implications are of a growing pool of discouraged workers. The social repercussions can be disastrous. Temptations for illegal activities and attempts to go abroad via risky and illegal channels are rising. In addition, having more discouraged workers implies that the country is not being able to utilise its human resources to enhance its economic growth and overall development.

If employment growth does not accelerate to match the growth of the labour force age population, those not in employment contribute to the pool of surplus labour even if they are not considered unemployed as per the limited criteria used by the BBS. This surplus can have a depressing impact on wages by reducing the bargaining power of those who are employed or seeking employment. The recent stagnation of real wages may at least be partially due to this factor.

The preliminary QLFS reports do not provide data on wages or salary. But this data can be very useful for analysing the performance of the labour market and is something that BBS should include in upcoming QLFS. The quarterly labour force reports of India and Pakistan, for instance, provide data on not only wages and salaries, but also on income from self-employment.

All in all, the decline in the number of unemployed between the first two quarters of 2023 is not reassuring, since there has been a simultaneous decline in the number of employed persons. Even more alarming is the decline in industrial employment during 2017-2022. There is no alternative to conducting a more in-depth analysis of the factors behind the slow growth of employment in Bangladesh and urgently adopt remedial policies.

Dr Rushidan Islam Rahman is an economist and former research director of Bangladesh Institute of Development Studies (BIDS).

Views expressed in this article are the author's own.

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