Growth of Employment in Pakistan

Slow growth of employment despite high growth rate of output has been due to low employment elasticity which has been around 0.36. To the extent labour productivity increases without an appreciable increase in the capital intensity, it is highly desirable, but if it is the result of an increase in capital intensity, it results into lower output and employment.

Like most of the labour-surplus countries, the problem of underemployment in the form of low productivity, unproductive and less remunerative work and inappropriate or inadequate work in terms of the number of hours per week is even more severe than the problem of open unemployment. A quarter of the employed persons earn incomes falling short of the subsistence level, while another one quarter is on the borderline of the subsistence level. About ten percent of the employed had insufficient work, i.e. less than 35 hours a week.

Unless major policy changes are brought about, the growth rate of output will have to exceed 8 percent, if employment situation is not to deteriorate any further. Unless there are massive dozes of capital flows either in the form of foreign aid or in terms of private investment, such high rates of investment do not look very realistic. In the absence of such high rates of investment, efforts will have to be mounted to increase the employment elasticity through appropriate changes in macroeconomic policies. This may require promotion of small-scale enterprises by removing the differential in import duties on organised and unorganised producers, availability of credit, generation of demand for these enterprises and skill development.

Taxation policy of the government can be a potent instrument for improving income distribution. A regressive taxation structure can make life more miserable for the common man. Progressivity or regressivity of taxes in Pakistan have been examined by Irfan (1974). Alauddin and Naqvi (1985), Jeetum (1978), Qureshi (1986), Malik and Saqib (1989) and Kemal (1994). The incidence of taxes in 1987-88 to 1990-91 period is reported in Table 1.

Table 1

Incidence of Both Direct and Indirect Taxes

Note:  It includes only income tax, tariffs, excise duties and sales tax.

Table 1 shows that Pakistan’s tax structure is almost proportional until we reach the final group when it becomes progressive. Same pattern has been observed in the earlier studies which have been carried out for the period of the ‘60s and the ’70s.

Nevertheless, it is important to note that while the tax incidence has increased most for the lowest income group, the incremental burden goes on falling as the income rises and for the highest income group, the tax incidence, in fact, has declined over the 1987-88 to 1990-91 period [see Table 2]. Compared to a decline of 4.3 percent in the tax burden for the richest section of the population, the tax burden on the poorest class has increased by 10.3 percent. This pattern of the increase in tax burden is essentially a reflection of the emphasis on additional indirect tax mobilisation particularly the sales taxes.

Table 2

The Percentage Increase in Tax

Burden by Income Groups

Source: Based on Table 1

Source: Poverty Alleviation in Pakistan: Present Scenario and Future Strategy, Mohibul Haq Sahibzada. Republished with permission.