Abstract
The article examines whether labour market outcomes like employment, wages, returns to self-employment and social protection are contributing to make economic growth inclusive in countries of South Asia. Although the term inclusion may be conceptualized in different ways, it is important to focus on both the process and outcome. While the process of inclusion can be captured through measures relating to employment, the outcomes can be assessed in terms of poverty, inequality or other dimensions of human development like education and health. Another important element of inclusion is the degree of social protection provided by a society. Characterized this way, labour market outcomes are of direct relevance for inclusive growth. A number of questions may be raised in this context: (a) Is economic growth leading to the growth of productive employment that is needed for absorbing the new members of the labour force and for transferring workers from sectors characterized by low productivity to those with higher productivity? (b) Is sector composition of employment changing in a way that contributes to poverty reduction (through higher incomes of workers)? (c) Is access to social protection expanding along with economic growth? (d) Is economic growth associated with the growth of labour productivity and rise in real wages? and (e) Are real wages rising to contribute to reduction in poverty and inequality? The present paper attempts to address some of the above questions with a particular focus on the experience of the countries of South Asia. Using the concept of employment elasticity with respect to output growth, it shows that the labour absorptive capacity of the countries of the region has been low and has declined. The process of transformation of the structure of employment has been slow, and as a result, the informal economy has remained the predominant source of jobs for the growing labour force. That, in turn, has meant limited access to social protection because there is a negative relationship between the proportion of employment in the informal economy and access to social protection. Furthermore, the relationship between access to social protection and economic growth has not been linear, thus indicating that growth alone cannot be relied upon to address the issue. Public policy is also important. On the positive side, in some countries, real wages have registered increases in some sectors, especially in agriculture—showing potential for making contribution to poverty reduction. But the rise in real wages has not been sustained in recent years and has lagged behind that of labour productivity. As a result, there has not been much impact on growing income inequality. Gender differences in wages have also persisted. On the whole, it seems that labour market outcomes in South Asia have not moved in a direction needed to make economic growth more inclusive. This contrasts with the experience of countries of East and South-East Asia, e.g. Republic of Korea, Malaysia and Taiwan (China), that have been successful in attaining economic growth with productive employment and rapid rate of poverty reduction. The findings of this paper could be useful to India and more specifically to the state of Uttar Pradesh in accelerating inclusive growth.
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Notes
- 1.
During the early stages of economic growth in South Korea, the ratio (GDP growth: growth of manufacturing sector) was over 2 during the 1960s, 1.8 during 1970–80 and 1.4 during 1980–90. In Malaysia, the corresponding figures were between 1.5 and 1.8 during 1970–1996 (Islam 2008).
- 2.
See, for example, the country studies in Islam (2006b) and the chapter in that book summarizing those experiences.
- 3.
For a detailed discussion of this aspect of employment intensive growth, see Islam and Islam (2015), Chap. 2.
- 4.
A synthetic analysis of the results of those studies can be found in Khan (2007).
- 5.
The study on Pakistan (Amjad and Yusuf 2014) does not provide such figures. But it was possible to estimate them by using the figures for growth of output and employment available in the paper.
- 6.
Amjad and Yusuf (2014) call the former a period of “high growth” and the second half a period of “low growth”.
- 7.
These figures have been calculated from data presented in Islam (2014a).
- 8.
These figures have been calculated by using data from the World Bank: World Development Indicators (various years).
- 9.
These figures have been calculated by the author using data available in Government of Pakistan: Pakistan Economic Survey 2010–11, Table 1.2.
- 10.
For example, according to data presented in OECD Employment Outlook 2006, GDP growth in USA during 1993–2003 was 3.2% per annum compared to 2.3% for the 15 EU countries and the OECD average of 2.7% per annum. During 2004–07, also growth in USA has been higher than that achieved by EU-15. Unemployment rate in USA has been much lower (5.3% on an average during 1993–2003) than in EU-15 (8.8% during the same period).
- 11.
In 2004, according to OECD (2006), the duration of unemployment benefit was 6 months in USA compared to 30 and 12 months, respectively, in France and Germany and an average of 34 months in Nordic countries (Denmark, Finland, Norway and Sweden). Likewise, public expenditure as percentage of GDP was much lower in the USA (0.55% in 2002) compared to 1.39 and 2.1% in France and Germany, respectively (Auer et al. 2005).
- 12.
For a more detailed analysis of this aspect, see Islam (2008).
- 13.
This, of course, is not to say that it is impossible for the self-employed to organize social protection for themselves. For a description of some such efforts, see ILO (2014).
- 14.
The idea of Social Protection Index has been developed by the Asian Development Bank and is defined as the ratio of total social protection expenditure and total intended beneficiaries. Three categories of social protection expenditures have been included: (i) social insurance, (ii) social assistance and (iii) labour market programmes. For further details, see (ADB 2013).
- 15.
It may be noted in this context that in India, the 2006 report of National Commission for Enterprises in the Unorganized Sector (NCEUS) had made a set of recommendations social security for unorganized workers. Researchers are of the view that the Unorganized Workers’ Social Security Act of 2008 does not adequately reflect the recommendations of the NCEUS. On this and the implementation of various programmes of social security for the poor in India, see Kannan and Breman (editors) (2013).
- 16.
- 17.
Studies that cover up to 2004–05 show an acceleration in the growth of urban wages during 1993–94 and 1999–90 (compared to the period of 1983 to 1993–94), but the rate of increase declined after that (ILO 2009).
- 18.
It may be mentioned in this context that data presented in that study (in Fig. 8) seem to show that real wages in 2010–11 and 2011–12 were higher than that of 2009–10. But the key question is whether that represented the beginning of a rising trend in subsequent years.
- 19.
These and other data presented in this paragraph are from IHD (2014).
- 20.
Despite high growth of real wage rates (6–7% per annum during the 2000s), the share of wages in value added has declined in China as well. See ILO (2015).
- 21.
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Islam, R. (2019). Labour Market Outcomes and Inclusive Development: Experiences of South Asian Countries. In: Mamgain, R. (eds) Growth, Disparities and Inclusive Development in India. India Studies in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-13-6443-3_4
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