Skill matching in a rigid labour market

As a country well-endowed with labor, Pakistan’s employment problem is at best ironic. On the one hand, we have a huge supply of labour market entrants, and on the other hand we have a demand for ‘specific’ skills sets leading to the shortage of skilled workers; hence pushing more and more people into unemployment or informal work. According to UNICEF, Pakistan has one of the world’s largest youth bulges. This demographic dividend can provide a competitive edge if this population can be turned into an employed and productive labour force. However, this population dividend has a potential to be a demographic disaster if a majority of the population remains unemployed; due to lack of ‘adequate’ and ‘targeted’ technical and vocational skill development.

It is apparent that Pakistan faces a challenge of skills shortages and skills mismatch. An important manifestation of this low-skills trap is that most of the jobs generated are in the informal economy, characterized in most cases by low incomes, low productivity, and poor and hazardous working conditions. In addition, high levels of illiteracy coupled with low levels of nutrition remain a major concern in many regions. These present an additional barrier, as they hinder the ability of individuals to reach the level of productivity required to participate in advanced education and training activities.

Moreover, new forms of business organisation and production, emphasis attracting foreign direct investments, changes in technology, emergence of global markets for products and services, international competition, and new environmental challenges have created a demand for new, diversified, and sector-specific skills and knowledge in existing labour markets. Therefore, in addition to improving education, an integral component of human development in the country is to improve the cognitive and non-cognitive skills of the existing labour force.

Furthermore, human resource policies of the government need to be in line with the requirements of the local and global economy, and the human development agenda; including improved health and literacy programs and skills development should be designed as such. Significant and targeted efforts are required to upgrade the skills of the existing labor force to reduce vulnerability to health and income shocks such that possibilities to attain and ‘retain’ decent work can be realized.

The challenge is to convert what appears to be a supply-driven strategy to one which is more demand driven, and is geared to meeting the skill needs of the employers in a cost effective manner. This is of particular concern if the country seeks to increase participation in the global market. One of the most important conclusions drawn from ILO’s World Employment Report 1998-99, an exhaustive study of training systems worldwide, is that training systems are a product of (i) labour market institutions and the incentive structures in which they operate, and (ii) the support they receive from employers, workers and governments. Yet most skills developed over one’s life are acquired on the job; mostly in enterprises operating in both the formal and the informal economy. The incentives for enterprise-level training and the means of overcoming disincentives to spending on training need to be carefully analysed so as to move closer to both optimal levels of training, and efficient delivery of training over the life cycle. Employers’ and workers’ organisations play a major role in this process. The key here is to design a holistic and flexible strategy that takes account of the varying labor supply and demand conditions over time.

Most importantly, at the heart of Pakistan’s transformation into a knowledge based economy is the need for ‘behavior change’ at all levels. What needs to be embedded into everyone’s perception of a well-functioning labour market—be it employers, entrepreneurs, workers, the civil society or the public sector—is the fundamental notion of decent work, and respect and enforcement of basic human rights. This realization though sprouting sporadically, has been slow in coming to Pakistan.

It is also being argued with empirical and statutory evidence that the labour market has been far too rigid and the existing labour regulatory framework acts as a strong disincentive to offering permanent employment and expanding employment opportunities in the formal or organised sector. These concerns push the need for revisions to the labour regulatory framework, to one which combines a degree of flexibility for employers with a measure of stability for workers in terms of tenure and affordable benefits for all stakeholders.

Competitiveness in the labor market, achieved through more flexible labour market policies, is crucial for growth and development, especially in a globalizing world. However, labour-market flexibility should not compromise on the capacity of people to attain decent work, which is conceptualized as consisting of six dimensions that cover; (i) opportunities for work, (ii) work in conditions of freedom, (iii) productive work, (iv) equity in work, (v) security at work, and (vi) dignity at work. In addition, human resource development should be gender unbiased. For a qualified and spirited labour force in the years to come, equal investment in education and technical training for both women and men is needed such that full and productive employment for all is realized.

Note: News shared for public awareness with a reference to the information provided at online news portals.