Pakistan is not running out of people willing to work. It is running out of an economic system capable of productively absorbing them.
According to the latest Labour Force Survey (LFS), Pakistan adds roughly 2.5 to 3 million new entrants to its workforce each year. At recent economic growth rates, however, the economy absorbs barely one to one-and-a-half million. The arithmetic is unforgiving. Each year, a widening pool of workers is left unemployed, underemployed, or pushed into low-productivity informal jobs. This gap is neither cyclical nor temporary. It compounds year after year, quietly reshaping livelihoods, expectations, and social stability.
The stress is most visible among the young. Youth unemployment remains more than twice the overall unemployment rate, even as millions of educated young Pakistanis struggle to transition from schooling into stable work. At the same time, female labour force participation remains below one-quarter—among the lowest in the region.
Increasing women’s participation is economically and socially essential. But in an economy that is not creating productive jobs higher participation initially produces a “scarcity reshuffle”: more people competing for the same limited pool of quality employment. This reshuffle redistributes scarcity rather than eliminating it. The failure lies not in participation itself, but in an economic structure incapable of absorbing labour at scale.
The central message of the LFS is unmistakable: Pakistan’s labour market is constrained by a structural inability to convert demographic pressure into productive employment.
A persistent misconception in policy debates is that growth and job creation move automatically together. They do not. Pakistan’s recent growth episodes—where they exist—have been weakly labour-absorbing. Much of the expansion has come from sectors that generate few jobs or rely heavily on informal, low-productivity labour. As a result, growth has failed to ease labour market pressure in any durable way.
The consequences extend beyond unemployment statistics. Weak labour absorption feeds directly into rising poverty and growing strains on social control. When large segments of the working-age population remain idle or trapped in insecure, lowpaying work, households deplete savings, intergenerational mobility stalls, and informal coping mechanisms replace formal opportunity. Over time, this erodes social cohesion and increases vulnerability to unrest and instability.
At the heart of this crisis lies persistently low labour productivity. Output per worker remains weak despite an expanding education sector. Paradoxically, the structure of employment itself reinforces this stagnation. Workers on permanent contracts often face weak performance incentives and limited pressure to upgrade skills. Those on temporary or informal contracts hesitate to invest in training due to job insecurity. Employers underinvest in workforce development because of poaching risks, regulatory rigidities, and low expected returns.
The economy becomes trapped in low-skills, low-productivity equilibrium. Education expands, but employability does not. Experience accumulates, but productivity barely improves. Workers remain busy—but not productively engaged.
Yet productivity-led growth presents its own dilemma. In economies like Pakistan’s—where firm dynamism is weak and labour mobility limited—productivity improvements, especially those driven by automation, can initially reduce labour demand. Without parallel expansion of labour-absorbing sectors, productivity gains risk deepening unemployment. The challenge, therefore, is sequencing productivity growth with substantial job creation.
Other countries offer cautionary lessons. Spain’s dual labour market—rigid permanent contracts alongside widespread temporary employment—produced decades of low productivity and high youth unemployment. Pakistan risks drifting toward a similar structure, but with weaker institutions and thinner safety nets.
This tension is now colliding with the age of artificial intelligence. In Pakistan, where adult learning systems remain weak, technology is more likely to displace routine clerical, service, and manufacturing jobs than to create new opportunities unless accompanied by active reskilling.
Labour export has long been treated as a pressure-release valve. Remittances help households, but exporting low- and semi-skilled labour is not a development strategy. No country has achieved sustained prosperity by exporting workers instead of upgrading firms.
Informality remains the default absorber of labour stress. It masks unemployment but suppresses productivity, wages, and human capital accumulation—perpetuating poverty and fragility.
Jobs are created when firms grow. Pakistan has too many micro-enterprises and too few mid-sized firms that scale. Weak competition, limited access to finance, and policy unpredictability constrain investment in technology and training.
What must change? Policy must align productivity, labour absorption, and social stability—and it must do so in the right sequence.
First, fiscal and industrial policy must be rewired. Budgetary incentives and sectoral support should be tied not merely to output, but to verifiable firm-level investment in technology adoption and workforce training. Growth strategies that ignore labour absorption will continue to disappoint.
Second, labour market institutions need reform to encourage mobility and skill accumulation. This requires simplifying labour regulations that entrench a rigid divide between permanent and informal work, while transforming skills institutions—particularly NAVTTC—into platforms for portable, certified skills that workers can accumulate over their lifetimes.
Third, technology policy must be inseparable from human capital policy. Every digital infrastructure initiative should be paired with publicly co-funded re-skilling programmes for vulnerable occupations. Digitisation without reskilling will deepen inequality and unemployment.
Fourth, labour export strategy must be upgraded. It should complement, not substitute for, domestic reform. Mandatory, high-quality pre-departure training—aligned with destination-country demand—can help build higher-value skills that benefit both overseas workers and the domestic economy.
Above all, labour must be treated as productive capital to be developed and valued—not as an excess to be managed.
Pakistan’s labour market challenge is no longer a marginal concern; it is the binding constraint on growth, poverty reduction, and social stability. The Labour Force Survey is not merely a statistical update—it is a warning. Whether this moment becomes a breaking point or a turning point depends on whether labour market reform is finally recognised as the country’s central economic challenge.
Copyright Business Recorder, 2026
The writer is the Vice Chancellor of the Pakistan Institute of Development Economics (PIDE) and Member at Planning Commission of Pakistan