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The Financial Express

Labour market dynamics in Bangladesh and impact of Covid-19

| Updated: August 11, 2021 22:45:13


Labour market dynamics in Bangladesh and impact of Covid-19

The Covid-19 pandemic that started in China in December 2019 and spread over almost all other countries has caused disappointments in global economic growth as it has discouraged investment and, hence, disrupted the labour markets. Though figuring out the economic damage is difficult, a report estimated that the loss was 4.5 per cent of global gross domestic product (GDP). The International Monetary Fund (IMF) estimated a contraction of -3.30 per cent GDP growth in 2020. The world economy witnessed an upward trend of unemployment rate of 6.5 per cent in 2020 while the rate was 5.4 per cent in 2019. Likewise, the Bangladesh economy faced a lower real GDP growth at 3.51  per cent in financial year 2019-2020 (FY20) as compared to 8.15 per cent of that in the previous financial year (FY19) because of the Covid-19 pandemic shock. The labour markets were distorted as many working-age people became jobless in the country following the adverse effects of prolonged restriction measures imposed to check the surge of coronavirus infections. This note attempts to explains the disturbance in the labour markets in Bangladesh to understand which segment of population has been most affected by the pandemic and what measures have been taken so far to support the labour markets.

After the fallout of Covid-19, the government and Bangladesh Bank have taken proactive actions including a comprehensive stimulus package to ensure economic activities and retention of employment. A proper assessment of the loss of working hours, employment and incomes can guide further for formulating appropriate policies to gear up employment generation in the country. In this backdrop, this write up attempts to examine the current status of employment on the back of Covid-19 shock towards providing insights on what to do for near and medium term.

LABOUR MARKETS IN BANGLADESH: Working-age population in a country reflects the economy's ability towards long-run growth as it offers a demographic dividend to the economy. Country's working-age population increased significantly from 58 per cent in 1999-2000 to 68 per cent in 2016-2017, opening up new economic opportunities. According to the LFS (2016-17), 69.8 per cent of working-age population lived in urban areas, whereas it was 66.7 in rural areas in 2016-2017. The LFS defined that if the working-age people are economically active, and they are employed for at least one hour during the seven days prior to the survey, or have a job attachment but are temporarily absent from work or are available to work if any work could be found, they are to be considered as labour force.

Chart-1 shows that the total number of labour force increased from 40.8 million in 1999-2000 to 63.5 million in 2016-17. This policy note estimates the number of labour force in the subsequent years and found 64.7 million and 66.0 million in 2018 and 2019, respectively. Considering the Covid-19 shock on employment, the labour force estimated was 63.2 million in 2020. A trend can be observed between the share of male and female labour force as female labour force showed a gradual increasing share from 21 per cent in 1999-2000 to 33 per cent in 2020, while that for male had been decreasing. Increasing share of female participation in the labour force implies more inclusive economic development, strengthening women's roles in mainstream economic activities.

Agriculture is a main strength of Bangladesh economy and a large segment of population is employed in this sector. However, many of existing or newly increased labour force over time switched their jobs mainly to services and industry sectors. The labour force in services and industry sector increased significantly from 13.9 and 5.1 million in 1999-2000 to 24.7 and 12.4 million in 2016-17 respectively, while the labour force in agriculture sector remained more or less stagnant, increasing from 20.0 million in 1999-2000 to 24.7 million in 2016-17. The estimated data show that labour force in agriculture, services and industry sector dropped down to 22.3, 12.2 and 26.1 million, respectively, in 2020 after the Covid-19 shock on the job market.

Sectoral composition of labour force by gender shows structural change of female employment in agriculture sector as female participation in agriculture sector had been increasing over time (Chart 2a). The Charts 2b and 2c show that male workers in agriculture sector shifted to services and industry as male participation in industry and services sector had been increasing gradually until 2019. Therefore, male workers in industry and services sector were hit hard by Covid-19 pandemic.

LABOUR DECOMPOSITION - RURAL VS. URBAN: The labour force in urban areas increased from 9.3 million in 1999-2000 to 17.9 million in 2016-2017, while labour force in rural areas increased from 31.6 million in 1999-2000 to 46.8 million in 2016-1017. This write up estimates that urban and rural workforce decreased to 17.5 and 45.7 million in 2020, respectively, because of Covid-19 induced damages (Charts 3a and 3b). The growth rates of female labour force were higher as compared to that of male labour force during the years. The compound annual growth rate (CAGR) was 4.9 per cent for female labour force, while it was 3.5 per cent for male labour force in urban areas during the years between 1999-2000 and 2016-2017. In case of rural areas, the CAGR was 5.1 per cent for female labour force, while 1.2 per cent for male labour force, during the period. After the Covid-19 pandemic shock, the CAGR for female labour force was 4.4 per cent during the years between 1999-2000 and 2020, while it was 2.8 per cent for the male in urban areas during the years between 1999-2000 and 2016-2017. In case of rural areas, the CAGR for female labour force was 4.8 percent, while it was only 0.8 per cent for the male during the periods including the Covid year of 2020. 

LABOUR DECOMPOSITION - FORMAL VS. INFORMAL: Informal sector represents an important wing of the labour market of Bangladesh economy, playing critical roles in employment creation, economic activities and income generation. The informal sector consists of self-employed labours including day labours who are unregistered and/or unincorporated private enterprises engaged in the production of goods and services. Table 1 shows that 85.0 per cent of the employed population engaged in informal sector in 2016-2017 increased gradually from 75.3 per cent in 1999-2000. Hill and Genoni (2019)  estimates that labour income comprises 80 per cent of total household income for the poorest 40 per cent of households. Hence due to Covid-19 induced vulnerabilities in the labour markets caused by restriction measures to check the surge of the virus have taken a serious toll on work and income of the poor involved in informal sectors. A study conducted by Centre for Policy Dialogue (CPD) and Bangladesh Institute of Labour Studies (BILS) found that urban informal sector lost about 1.08 million jobs due to the Covid-19 pandemic, which was over 8 per cent of total urban employment at the level of 2016-2017.

IMPACT OF COVID ON WORKING HOURS, JOBS & INCOME: Labour markets worldwide were disrupted in 2020 on an unprecedented scale after the Covid-19 shocks in many economies. Bangladesh economy was no exception as Covid-19 related restrictions were imposed nationwide during April-May 2020, shutting factories and industries, suspending transport movement, closing offices and banning gatherings which disrupted the domestic labour markets. The losses of working hours, employment and labour income as a consequence of Covid-19 related restrictions are shown in Chart-4. The chart shows that a total of 13 per cent working hours were lost in Bangladesh in 2020. International Labour Organisation (ILO) estimated working hours lost for the lower middle-income countries, which include Bangladesh, and found 12.5 per cent working hours lost in the second quarter of 2020. Moreover, ILO estimated and found that the working hours lost in Bangladesh due to the Covid-19 crisis was 12.2 per cent in 2020. 

Chart-5 also shows that the employment declined by 4.3 per cent, and the associated income loss decreased by 8.6 per cent in 2020 in the country. While all the three major economic sectors experienced declines in 2020 in terms of working hours, employment and labour income (except labour income for agriculture sector), industry and services sectors were hit hard by the pandemic. Working hours for industry and services sector faced decreases of 11.5 and 21.6 per cent, respectively in 2020. Labour incomes declined by 7.1 and 17.6 per cent for industry and services sectors, respectively in 2020.

COVID-19 SHOCKS ON EMPLOYMENT IN OVERSEAS MARKETS: Bangladesh is one of the largest remittance recipient countries, where migrant Bangladesh workers in overseas markets play the key roles. Chart 6 shows that overseas employment in all countries including GCC and Asia-Pacific regions followed an increasing trend until 2017, and the employment, thereafter, started to decline. The overseas employment was largely affected in 2020 and 2021 (until February) due to the ongoing pandemic (Chart-5).

On the other hand, a total of 408,408 migrant workers returned to Bangladesh during 2020 after the pandemic fallout, mostly from GCC and Asia-Pacific regions (Chart-6). However, even though almost no migration of employment in overseas countries and a huge number of overseas employees returned, remittance inflows increased by 27.5 per cent in 2020. The uplift of the flow of remittances was possible due to government's and Bangladesh Bank's proactive measures such as providing incentives to remittance senders through formal channels as well as the repatriation of funds by the migrant workers in the wake of Covid-19 related uncertainties. Policymakers can take further actions on how to make convenient environment for migrant workers.

EMERGENCY SUPPORT FOR THE LABOUR MARKETS: Bangladesh, like most of the countries, is facing the threat of a major economic crisis as a result of the Covid-19 pandemic. The government and Bangladesh Bank have undertaken unprecedented policy measures that helped the economy minimise the deceleration of economic growth and employment opportunities. The key policy measures for supporting the labour markets are described briefly in below (a table is given in Appendix I, detailing the sector-wise stimulus packages and implementation status) :

AGRICULTURE SECTOR PACKAGES FOR STRENGTHENING LABOUR MARKETS:  In response to the crisis from the pandemic, total stimulus packages of Tk 185.8 billion were provided as agricultural subsidy for seeds, fertiliser, innovation, mechanisation and irrigation which helped the labour market to be activated during Covid-19 period. Agriculture subsidy for FY20 was increased to Tk 95 billion for ensuring food security. A refinance scheme of Tk 50 billion has been created for the working capital for the agriculture sector. In order to tackle the adverse impact of Covid-19 on marginal people, Bangladesh Bank also announced an amount of BDT 30 billion as revolving refinance scheme. The objective of the scheme is to provide support to the labour force including poor people, farmers, holders of small/marginal businesses and the wage earners who have returned from abroad due to Covid-19 situation. This revolving refinance scheme is helping farmers and poor business people continue their regular activity in pandemic time, activating dynamism in the labour markets.

GOVERNMENT'S FOCUS ON SME AND CSMES SECTOR: A large number of employment-supportive CMSEs were mostly shut down during the pandemic period, resulting loss of job and capital. According to IFC, around 37 per cent of the workers in Bangladeshi MSMEs either lost their jobs, temporarily or permanently. The Government of Bangladesh and Bangladesh Bank have been providing policy support to banks and financial institutions by giving priority to SMEs and CMSMEs sector and by providing various types of loans and refinancing facilities. To safeguard the capacity of the SMEs and cottage industries, the government announced Tk 200 billion working capital loans for the sector entrepreneurs, and to retain the manpower employed in this sector. The female entrepreneurs can easily get the loan from these packages as the CMSMEs sector has a large number of enterprises run by females. The government announced another stimulus package of Tk 15 billion for the micro and cottage enterprises through various government and semi government agencies like the SME foundation, the BSCIS and Bangladesh NGO Foundation to infuse dynamism into the rural economy amid the pandemic.

LARGE INDUSTRY AND SERVICE SECTOR PACKAGES TO RECOVER THE ECONOMY: The stimulus packages emphasised on supporting large industries including labour-intensive and export-oriented businesses and major service sector industries. The packages also included measures aimed at ensuring working capital loans to the affected industries and service sector. Around 60 per cent employment generating sectors (industry and service sector) were disrupted massively amid the pandemic due to stoppage and slowdown of economic activities. The government announced a time-befitting labour-supportive package of BDT 50 billion for providing salaries and wages to workers and employees of export-oriented manufacturing industries that are in danger of having to close down. This package is preventing a major decline in the growth of exports. In the pandemic period, several industry and service sector related companies made complete and partial layoff for unavailable capital support. In this regard, Bangladesh government responded very quickly and announced Tk 400 billion working capital loans to affected industries and service sectors through commercial banks. The government announced an amount of Tk 15 billion for expansion of social safety net programmes for the workers who lost their job in the RMG, leather goods and footwear industries. The government also provided special honorarium to doctors, nurse and medical workers who are directly engaged in treating Covid-19 patients. To support rural poor farmers, expatriate migrant workers, and trained youth and unemployed youth, the government provided Tk 32 billion capital through state owned specialised Banks.

CONCLUSION:  From the discussions it is clear  that the labour markets were severely affected in all the major sectors. Estimated data show that labour force in agriculture, services and industry sectors dropped down to 22.3, 12.2 and 26.1 million respectively in 2020 after the Covid-19 shock. Data also show that though Covid-19 pandemic has hit all sectors, male workers in industry and services sector were hit hard in case of both urban and rural areas. After the Covid-19 pandemic shock, the CAGR for female labour force was 4.4 per cent, while it was 2.8 per cent for the male in urban areas during the years between 1999-2000 and 2020. In case of rural areas, the CAGR for female labour force was 4.8 per cent, while it was only 0.8 per cent for the male during the periods including the Covid year of 2020.

In the analysis of formal and informal labour dynamics, it has been found that 85.0 per cent of the employed population engaged in informal sector in 2016-2017, increased gradually from 75.3 per cent in 1999-2000. This huge segment of labour force who have poor levels of income can easily be affected by the vulnerabilities due to Covid-19 related restrictions.

This note attempts to estimate the losses in terms of employment, working hours, and labour income because of Covid-19 induced crisis. The results show that total of 13 per cent working hours were lost in Bangladesh in 2020. The ILO nowcasting model estimated and found that the working hours lost in Bangladesh due to the Covid-19 crisis was 12.2 per cent in 2020. This paper also finds that the employment declined by 4.3 per cent, and the associated income loss decreased by 8.6 per cent in the country in 2020. While all the three major economic sectors experienced declines in 2020 in terms of working hours, employment and labour income (except labour income for agriculture sector), industry and services sectors were hit hard by the pandemic.

In response to Covid-19 crisis, government of Bangladesh and Bangladesh Bank provided comprehensive supports to labour force across all economic sectors, including agriculture, SMEs, industry and services. These policy supports were very effective to revive the employment generation across the sector. However, a further study is needed to assess the impact of implementation of stimulus packages targeted for retention of labour markets.

Dr Md Salim Al Mamun, Deputy General Manager, Raju Ahmed, Deputy Director, and Dr Md Ezazul Islam, General Manager, Chief Economist Unit, Bangladesh Bank. [email protected]

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