Economic liberalisation and employment in South Asia

Economic liberalisation and employment in South Asia

Mixed news on impacts, and recommendations for new programmes

Examines the impact on employment growth (total, agriculture, industry), unemployment, real wages, wage inequalities between skilled and unskilled workers, women’s employment and child labour. It also analyses whether labour rigidities have affected the employment growth in South Asian countries. The evidence presented in the paper shows that the impact of economic liberalisation on employment and labour income has not been as bad as that for Sub-Saharan Africa or Latin American countries. On the other hand, it has not been as favourable as in some of the East Asian countries.

Main findings include

  • GDP growth seems to be slightly higher after liberalisation except in Pakistan
  • The impact of external sector liberalisation may not be insignificant in South Asia as exports and imports rose faster than GDP in the region as compared to those for Sub-Saharan Africa and Latin America
  • The share of informal sector increased particularly for services in India
  • The rate of growth in private sector employment increased faster than in the public sector. The share of private sector in total capital formation in India increased significantly after liberalisation
  • There was jobless growth for 1980s in the manufacturing sector for South Asia. The manufacturing sector showed higher growth in the 1990s for India. Micro surveys show some concern regarding retrenchment of workers in manufacturing employment
  • Unemployment rates showed a mixed picture. It declined for India and Sri Lanka while it rose in Pakistan, Bangladesh and Nepal
  • Incidence of poverty by workers in India shows that it declined for all workers but the rate of decline was lower for casual workers
  • Real wage growth for agricultural labourers was lower after liberalisation
  • Inequalities in income and consumption increased in most of the countries in the post-liberalisation period. The results from CGE models also show that inequalities increased
  • Women’s participation increased but it is not clear whether they are better off in terms of work load and income. Child labour declined at macro level. One may have to go beyond poverty in explaining the variations in child labour

The paper concludes that the future scenario of employment shows that a lot of effort is needed for South Asian countries in order to have more productive employment and higher labour incomes. There is a need to have investment led growth strategy. Investment is needed by both public and private sectors to increase physical infrastructure.

More attention should be given to institutions, and governance. There is also need for having strategies reduce inequalities (e.g. land reforms) and increase labour intensity. Thus, the second generation of economic reforms, inter alia, should consider strategies that raise investment in physical and human capital, institutions and governance and reduction in inequalities [author]

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