2020-21: Overstatement of employment

The labour force survey for 2020-21 has been released recently by the Pakistan Bureau of Statistics (PBS). Despite the sizeable negative impact of COVID-19, the estimates reveal a big growth in employment from 2017-18 to 2020-21, as shown below in Table 1

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                            Table 1
   Size of Labor Force and Employment, 2010-11 to 2020-21
                                                (Million)
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                 2010-11    2014-15    2017-18    2020-21
---------------------------------------------------------
Labor Force       57.24      61.04      65.50       71.76
                            (0.95)*    (1.49)      (2.09)
Employment        53.84      57.42      61.71       67.25
                            (0.90)     (1.43)      (1.85)
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Annual absolute increase
Source: LFS
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According to the survey, 1.85 million jobs annually and over 5.5 million jobs cumulatively were created from 2017-18 to 2020-21. This rate of increase is over 29 percent more than the annual increase in employment in the last three years of the PML-N government.

The problem is that the economy grew much faster from 2014-15 to 2017-18 and the capacity for job creation was greater. The GDP growth rate over the three years, 2017-18 to 2020-21, was half that in the former period.

An important test of the validity of the employment number is the derivation of the employment response to GDP growth, measured by the elasticity, which is the ratio of the employment growth rate to the output growth rate. This is generally below unity because growth in output is normally accompanied by both growth in employment and growth in labor productivity.

The overall employment-to-GDP elasticity is presented in Table 2 for different periods.

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                           Table 2
                   Employment-to-GDP Elasticity
                         2010-11 to 2020-21
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                   Annual Growth Rate (%)     Employment-to
                       GDP    Employment    -GDP Elasticity
-----------------------------------------------------------
2010-11 to 2014-15     3.8        1.6                 0.421
2014-15 to 2017-18     5.0        2.4                 0.480
2017-18 to 2020-21     2.5        2.9                 1.160
===========================================================
Source: PES, LFS
===========================================================

The surprising result is that the elasticity exceeds unity from 2017-18 to 2020-21. It is clearly exaggerated.

Analysis is undertaken in Table 3 to see in which sector employment growth is overstated.

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                       Table 3
     Sectoral Employment-to-Output Elasticity, 2020-21
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               Employment     Value Added/   Employment-
              Annual Growth   Output Annual    to-Output
                 Rate (%)      Growth Rate    Elasticity
                                   (%)
--------------------------------------------------------
Agriculture        1.9             2.7             0.704
Industry           3.8             0.6             6.333
Services           0.4             3.1             0.129
GDP                2.9             2.5             1.160
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Source: PES, LFS
========================================================

Table 3 contains the absurd result for industry, where the employment-to-output elasticity is as high as 6.55.

The likely estimate of the increase in total employment from 2017-18 to 2020-21 is 2.5 million, based on the historical magnitude of the employment-to-GDP elasticity of close to 0.5. Accordingly, the unemployment rate in 2020-21 is estimated at 10.7 percent, substantially more than that reported by PBS of 6.3 percent.

The PBS has in recent months engaged in presenting biased statistics. The GDP size was increased by as much as 16 percent following the rebasing exercise. The GDP growth rate in 2020-21 has been raised to 5.6 percent from 3.9 percent. The growth rate of the QIM from July 2020 to January 2021 has been overstated by 3 percentage points. The rate of inflation as measured by the CPI continues to be understated and now the big overstatement of the increase in employment in the last three years.

There is a need for the National Statistical Council to investigate what is happening. Wrong statistics can lead to serious mistakes in the conduct of policies and create a false sense of complacency.

(The writer is Professor Emeritus at BNU and former Federal Minister)

Copyright Business Recorder, 2022