As Bangladesh stands on the verge of graduating from the Least Developed Countries (LDC) status by 2026, there are 4 critical labor market challenges connected to the industry and businesses for the country to overcome to have resilient economic growth beyond the transition for sustained development.
First, creating employment opportunities for the current labor force and the new entrants. The sluggish growth rate of jobs in the labor market (having fewer jobs compared to a huge number of job seekers and yearly new entrants in the labor force) results in youth unemployment by pushing a big portion of the working-age population out of the labor force and hence creating a big supply-demand gap.
Second, the labor share of the manufacturing sector must grow increasingly in the country. This means that the manufacturing industry that creates formal and decent jobs compared to the current context of the Bangladesh labor market, which is dominated by the informal sector, needs to grow faster.
Third, low labor productivity in the country impedes the growth of businesses and economies of scale of the industries and enterprises. Fourth, the skills gap in the labor market, which we often know as a skills mismatch, is responsible for underemployment and low productivity.
In this article, the writer will focus on the first two challenges, which are also, to a great extent, connected to the latter two.
Analyzing the data and several labor surveys, if we calculate the employment elasticity of growth, it will be clear that the job growth rate is improving in Bangladesh, but it is still slow relative to the economic growth of the country. The employment elasticity of growth (growth of jobs relative to the economy’s growth) witnessed a big fall from close to 1% in the early 2000s to just 0.12% during 2013-16. Subsequently, it rose to 0.32 between 2016 and 2017 and continued its upward trajectory, reaching 0.43 during 2017-2022.
Trends of labor share in the broad sectors can provide insight into how Bangladesh has been performing in terms of job growth and manufacturing industries. Bangladesh’s workforce has traditionally engaged in primary sector activities. While the country undergoes a structural transformation, transitioning from agriculture to manufacturing and services, the agriculture sector still commands the largest portion of employment. Surprisingly, despite a steady decline in agricultural employment as a percentage of total employment from 2010 until 2016-17, there was a reversal in 2022 as of the Labor Force Survey 2022. The share of agriculture in total employment decreased from 48.1% in 2006 to 40.6% in 2016-17, then to increase again in 2022 (Figure 1).
In FY22, the agriculture sector accounted for 45.3% of total employment, while the sector contributed less than 12% to GDP. This sector employed 32 million individuals in 2022 (Figure 1), which would be much higher if the indirect contribution to employment were considered. The spike in agricultural employment in recent times can be attributed to the fallout of the COVID-19 pandemic. The surge in overall prices and high inflation, leading to an increased cost of living, may be compelling more individuals, particularly women, to turn to agriculture for livelihood. The overall labor productivity in agriculture is low compared to other sectors; additional employment in this sector could imply a further decline in productivity.
Since the early 1990s, the manufacturing output, in real terms, rose by more than twelve-fold, with its share in GDP rising from 13% to 21.8% in 2022. During 2017–2022, the manufacturing value addition grew at an impressive annual average rate of 9.5%, against GDP growth of 6.5%. However, employment in the manufacturing sector declined from 8.8 million in 2016-17 to 7.9 million in 2022 – a sharp decline of 0.9 million employment in just five years (Figure 2). The decline of employment in this sector is evidence of jobless manufacturing growth in Bangladesh. This is largely attributed to the use of more capital-intensive technologies and automation, which result in labor-saving production processes.
Bangladesh witnessed a remarkable increase in the share of female workers in the manufacturing sector, driven predominantly by the rising number of women employed in the ready-made garment industry, comprising 75-80 % of the workforce. Nonetheless, recent trends suggest a great defeminization of female workers in the manufacturing sector. The share of females in the manufacturing sector declined from around 40 % in 2013 to 26 % in 2022 (BBS). A significant reduction in female participation was experienced in all major sectors, including apparel, textile, food products, tobacco, etc.
Noticeably, the share of females in the apparel sector declined to just 39% in 2022. A major reason behind the decline of female employment in manufacturing is the technological transformation in the RMG industry, which has been transforming it increasingly into a capital-intensive industry. Women, mostly employed in low-skill occupations and tasks, lost their jobs and relevance in the industry.
Another important area that Bangladesh’s enterprises, businesses, and investors must emphasize as a top priority is engaging youth in training and scopes for finding jobs. The number of youths not in education, employment, or training (NEET) is massive. However, Bangladesh is doing well compared to the South-Asian neighboring countries, with 22% of the total youth NEET (Figure 3). Nevertheless, the Youth NEET is a big challenge for Bangladesh to overcome as the total youth NEET population is still huge, and underutilizing the demographic dividend the country has been enjoying in the last decade is becoming a lost opportunity for the country.
Probable reasons for Youth NEET
- Less vacancies and training opportunities for youth to take part and apply and seek employment opportunities. In other words, the job growth rate is slow/low relative to the economic growth rate and size of the new youth entrants in the labor market.
- Low investment in education as a percent share of GDP makes education for youth expensive in many cases; therefore, a lot of them decide not to take part in education even if they are unemployed or inactive (not even searching for jobs)
- In Bangladesh, the typical theoretical case of getting higher returns to higher education is not true regarding employment opportunities in the labor market. Evidence suggests that, in many cases, getting higher degrees constrains the employment scope in the labor market. Therefore, youth are not motivated enough to take part in education as a process of finding a job. This is the same for participating in training programs; having skills development training in different occupations does not lead to employment scopes or improved employment opportunities. Hence, youth do not take part in the training programs as there is an issue of the cost of the training in terms of finances and investment of time and other resources.
- Due to the very tight labor market (fewer vacancies relative to unemployed or labor force participants), youth get demotivated after searching for jobs and training scopes after a few months and become inactive in the labor market, which makes them fall under NEET.
Probable solutions to overcome youth NEET
- Create jobs. Increase private and public investment to create more jobs targeted at youth and females.
- Establish public employment services and employment support service initiatives that engage employers.
- Increase public investment in education and training programs.
- Provide job search assistance and career guidance to youth to motivate them and keep the NEET youth active in the labor market.
To overcome the labor market challenges mentioned above, industries and businesses need to come forward and work closely with the government to implement the National Employment Policy (NEP) of Bangladesh and create more decent employment opportunities for the country’s youth.
Mohammad Avi Hossain is a Labor Economist working for the International Labor Organization.
This article is completely driven by the facts and figures that are publicly available and official. The analysis and opinion in this article are the author's own view and personal insights that have no link or connection with any organization.
