It’s a formidable task to describe the labor market in South Asia. The region’s eight countries vary widely in size, ranging from less than one million people each in Bhutan and Maldives to 1.2 billion people- about three quarters of South Asia’s population- in India. There is also diversity in stages of development, economic structures, social and cultural features. On the whole the economies of the eight countries in the region are essentially rural as well as agricultural and still unable to capture informal production activities of many individuals.
South Asian countries will add 1 million to 1.2 million new entrants to the labor force every month for the next two decades. They will further contribute about 40 percent of the total new entrants to the global working age (15-64) population. It goes without saying that creation of productive jobs (with jobs defined to include all wage work and self employment) will be the most dependable way out of extreme poverty for the South Asian region that is home to more than forty percent of the world’s absolute poor. According to an United Nations survey, the region’s current population of 1.65 billion will increase 25 percent by 2030 and 40 percent by 2050. Given the regions’ demographic dividend in terms of a youthful population, the working age population is projected to increase even more – 35 percent by 2030 and by 50 percent by 2050.
Among the five of the large countries in the region, employment growth since 2000 was highest in Pakistan followed by Nepal, Bangladesh, India and Sri Lanka. The total employment in South Asia (excluding Afghanistan and Bhutan) rose from 473 million in 2000 to 568 million in 2010, creating an average of just under 800,000 new jobs a month. Besides, in all countries except Maldives and Sri Lanka, the largest share of the employed are the low end self –employed (involved in small scale enterprises with no more than five workers/family enterprise workers). Nearly a third of workers in India and a fifth of workers in Bangladesh and Pakistan are casual laborers (who incidentally have the highest poverty rates). Regular wage or salaried workers represent a fifth or less of the total employment. In the region as a whole, 55 percent of the 1.04 billion working age population is employed.
Thus, with over 490 million young people aspiring to join the work force in the region, there is a dire need to identify major challenges and put in place effective policies that can enable productive absorption of the young in high quality jobs.
The first major challenge is the low female participation rate in the region. The lowest rates are in the three large South Asian countries: Pakistan where four out of every five women do not participate in the labor market; Bangladesh and India, where slightly more than two out of every three women do not participate. One underlying factor herein is the women’s disproportionate share of household responsibilities and thus their facing high opportunity costs when they work in the market place. Social norms and lack of access to education also affect these tradeoffs In India, interestingly, where the overall female participation rate was 30 percent in 2010, the rate among scheduled castes (46 percent) was 16 points higher and the rate among Muslim women (18 percent) almost 12 points lower. Improving opportunities requires interventions that relax time constraints, increase access to productive inputs and correct market and institutional failures that contribute to employment segregation.
The second major challenge is enabling an increase in the share of rural labor force off the farm. The concentration of working South Asians in rural areas reflects that more than 70 percent of the region’s working age population lives in rural areas and rural employment rates are higher than urban areas in all countries except Maldives. In Afghanistan, Bhutan, India and Nepal at least half of all employment remains in agriculture. At the same time, in Bangladesh, India, Maldives, Pakistan and Sri Lanka, 20 to 27% of the employed workforce works in the industry with most of them in manufacturing (but in small and micro enterprises with 1-49 workers which have lower value added per worker and hence pay lower wages). Interestingly, the share of agricultural employment in total employment has been declining and in the five largest countries in the region, employment growth in agriculture was slower than other sectors in the first decade of the century. This, therefore, signifies not just increase in rural-urban migration but also the growth of the rural non farm sector across the region.
Unlike East Asia, most nonfarm jobs in South Asia are in the services sector (utilities, real estate, public administration etc) with commerce as a subsector employing 12-33 percent of non farm rural workers. To enable an increase in the share of rural labor force off the farm, first and foremost, (as has been accomplished in China) institutions of local self government need to be incentivized to generate revenues to support skill appropriate village and town industries. Besides, time bound impetus needs to be given to liberalizing the small scale industry sector in rural areas while aggressively pushing rural literacy and quality implementation of public infrastructure i.e. link roads.
The third major challenge in South Asia is the issue of ‘informality’ in employment that leads to low earnings, less skills and little access to formal social protection systems. Informal workers include all workers performing informal jobs in agriculture, casual laborers, family enterprises workers and self employed workers with less than senior secondary education in the non agricultural sectors. Based on this definition, an estimated 86-95 percent of employment is informal in all countries except Maldives and Sri Lanka. Further, 71-81 percent of non agricultural employment is informal in all countries except Bhutan, Maldives and Sri Lanka. Other things being equal, a higher level of education is likely to reduce informality by increasing productivity. There is, thus, a dire need to strategically channelize appropriate resources for training and acquisition of abilities for the youth in rural areas to tide over the initial school to work transitions. Besides, the regulatory framework has to be made less burdensome, quality of government services to formal firms has to be strengthened and state’s monitoring & enforcement enhanced to a greater degree.
Finally, lies the challenge of reforming labor market institutions, policies and programs for the informal sector. This is in the backdrop of a lack of correspondence between training provided and needs of the employers in the formal sector being addressed on a war footing in South Asian countries. The most prominent example of the latter is India’s National Skill Development Corporation which provides gap financing to trainers in 21 key manufacturing and service sectors.
South Asia has a rich mix of informal worker associations and trade unions, self help groups, and other membership and community based organizations that play an important role in the labor market that employs a vast majority of workers. The specific challenge is to cover the gap in protection for informal sector workers while not constraining incentives for creating income from informal activities. First, public works programs (such as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in India, The National Rural Access Program in Afghanistan, The Rural Community Infrastructure Works Program in Nepal and Employment Generation for the Hard Core Poor in Bangladesh) have features of self targeting, optimal labor intensity, gender sensitivity, accountability and responding mechanisms to seasonality variations. Such program design features have a positive impact on beneficiaries’ short term income and ability to smooth consumption.
Second, major investments would be needed to upgrade facilities/equipment and design curricula and materials for training needs of the informal sector. More specifically, trainers from NGOs are often more effective in providing services that meet the needs of the informal economy. One such program is the Afghanistan Skill Development Program wherein government has contracted with NGOs to provide skill training in diverse areas such as business development, horticulture, food processing and livestock to farmers, unemployed youth and poor women. Besides, there is also need to strengthen informal apprenticeship training (e.g. 50-70 percent of employees in India in micro enterprises have obtained their skills through apprenticeships).
Third, provision of credit to individuals without access to formal banking services to enable production activities usually in the form of self employment or a household enterprise is critical. There is a need to develop instruments that allow providers of microfinance to identify entrepreneurs most likely to benefit from credit or associated subsidies be it the self help or cooperative delivery model. Except Bangladesh, where three of the top four micro finance institutions (e.g. Grameen Bank) show positive returns, India, Pakistan and Sri Lanka have to address the issue of financial sustainability in a major way.