Independent researchers, economists and some research institutions are busy discoursing on the relationship between economic growth and job creation. They opine that our economy is growing fast in terms of GDP but job creation is far lagging behind. Admittedly, there is inadequacy of jobs created in several sectors of the economy. The question is: how would the inadequacy determined? The present discussion has two aims- (i) to suggest a standard for evaluating job creation performance, and (ii) to elucidate the strategy for compliance of job creation target set by the government.
Working Paper 118 of the Centre for Policy Dialogue (CPD) reveals that the manufacturing industry accounts for 17.6 per cent of total GDP (2015-16) but its share in total employment is 14.4 per cent.The paper attempted to present information on employment elasticity of export-based manufacturing industries during the period 2000-2012.The elasticity ranged from 0.342 to 0.42 depending on the degree of export-orientation -- the higher the degree, the higher the elasticity. It is observed from a newspaper article (by Selim Raihan dated 12-05-2018) that GDP annually (average) grew by 6.6 per cent between 2013 to 2016-17 while the number of jobs increased by 0.90 per cent per annum. The article also showed that employment growth was much less than output growth in both industry and service. Agricultural sector registered a decline of jobs by 1.1 per cent against 3.2 per cent output growth. As regards overall employment elasticity trends, another feature (S.Raihan article dated 17-02-2019) stated that the elasticity had fallen to 0.25 in 2010-2018 from 0.54 in 1995-2000.
An analysis of the statistics cited above unveils that the researchers have evaluated the status of employment generation by comparing employment growth percentage against output or GDP growth. Employment elasticity is not basically a different measure. It is actually an integrated figure calculated as a ratio of the aforesaid two percentages. It may be noted that the studies leading to job creation findings were carried out after an enterprise had completed an operating cycle since output data are required. As the national production system is left to the private sector, the responsibility of creating jobs naturally rests with the private enterprises. Hence the government cannot directly create any job (except in its own organs).Rather it has to get the job creation targets met by the private operators. Investment precedes output and as such government's job target formulation needs to be based on standards which should emerge from the investment.
In the Seventh Five Year Plan (SFYP), the government set the target of job creation of 10.29 million (including 0.20 million migrants) during FY 2016 to FY2020. An English daily on 04-02-2019 reported on actual achievement so far made. As per the report, it is learnt that 1.8 million jobs were created at the end of FY 2016-17 against the target of 3.9 million (i.e., about 46 per cent target met). Here evaluation criterion is the planned target. But it is not clear as to how the target is set -- output or investment-based. So there is a need to look for an effective standard of private sector performance in case of fixing as well as complying with the government target.
Output-based criteria provide relative numbers on job creation but indicate no standard against which we can say job creation is optimum or good or poor. For example, we assume that output growth is 10 per cent and employment growth is 10 per cent. Here employment elasticity is 1. Then can we say that jobs are adequately created? It is difficult to answer the question because job creation does not depend on output only. Productivity, profitability and the degree of predominance of machinery and technology over men are among the very powerful factors. If there is a specification regarding how much output should accommodate one job on an average, it would be considered to be a standard. Whether such a standard currently exists or not is not known. As already stated, investment in business occurs prior to production. Both investment and labour belong to input category. Since a standard is used for both planning and controlling, it should be based on the size of investment. Mention may be made that in the 1980s UNIDO had included a condition of job creation ratio (investment-based) for maintenance by a new investor. Accordingly IDA had such conditionality for sanction of credit-based industrial projects.
Predetermination of job creation standard is crucial to monitoring compliance of employment generation by the private sector businesses. Such a standard is also required to make projections in the planning document of the government. Standard fixation is not an easy exercise. Research is to be conducted to fix multiple standards considering the characteristics of each type of enterprise, industry and farm. It is evident from the analysis of investment and employment data of 470 enterprises located in the EPZs that an average investment of Tk.0.8 million (Tk. 8 lakh) has created one job and the size of investment to create one job varies from Tk. 0.3 million to Tk. 0.32 million according to the type of industry. Above all, each standard should be expressed as: At least 1(one) job should be created from every amount of investment worth Tk.( ? ).
That job creation is not progressing well enough appears not to be good sign of harmonious government-business relationship. Our fast growing economy in terms of GDP growth evidences that the government is working well to improve and maintain congenial business atmosphere. But most of the private owners seem unresponsive to the government targets and expectations. Perhaps they are using more machinery and technology than labour. However, there may be a dialogue between the government and the business community over how to maximise employment generation in view of our socio-economic characteristics.
In fine, it may be suggested that the government should first fix the standards as well as the targets of job creation and then enter into contracts with the employers regarding employment criteria as one of the most important issues. Contractual obligations for the employers should be created in due time. Necessary legislation is also required to enforce and monitor contractual compliance, evaluate and control private sector performance. A separate body may be formed to manage these new responsibilities in order to safeguard public interest and to meet basic public demands.
Haradhan Sarker is ex-financial analyst, Sonali Bank & retired Professor of Management.
