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Alternative Approaches to Full Employment in Bangladesh Role of the Non-farm Sector

Muhammed Muqtada
Visiting Fellow, CPD
Centre for Policy Dialogue (CPD), House - 6/2 (7th & 8th floors), Block - F Kazi Nazrul Islam Road, Lalmatia Housing Estate Dhaka - 1207, Bangladesh and former Director of Policy Planning in the Employment Sector, International Labour Organization (ILO), Geneva

Abstract/ Executive Summary:

The slow growth of employment in the modern manufacturing sector has raised scepticism on how far, and how quickly, Bangladesh economy could productively absorb its large pool of surplus labour, and attain full employment. Following Ranis and Stewart (1993), the present paper re-engages (in) and examines the potential role of rural non-farm activity (RNA) in wiping out rural unemployment and underemployment, as it did in the case of some East Asian countries. This paper explores the extent and pattern of RNA growth in Bangladesh, its impact on jobs and incomes, as well as on labour market formations. The study contends that changes in rural labour market are often not reflected as structural change due to the presence of informality within the three traditional sectors. It explores pathways to enhancing rural non-farm employment and assesses the prospects of reaching full employment. Finally, the study stresses the need for a comprehensive policy framework and coordinated strategy for vigorous growth of rural non-farm enterprises, in order to increase the potential for higher productivity jobs, household incomes, and to enhance aggregate demand.

Keywords: Potential pathways, Future growth, Agricultural productivity, RNA productivity, Household income, RNA goods

Location: In Bangladesh

Start Date:

End Date:

Program Area: Socio-economic and Policy

Commodity: Employment, Labor, Livelihood

Objectives:

To determine the potential pathways; in particular- 1. The future growth of agricultural productivity. 2. The trends in RNA productivity and earnings. 3. The rising household income and demand for RNA goods and services. and 4. The emerging role of remittances in rural Bangladesh.

Methodology:

There can hardly be much contention that developing countries like Bangladesh must continue to expand the modern industry sector, especially manufacturing, in order to raise productivity, employment and incomes. In a planning perspective, major considerations need to be given on the relative weights and the incentives to various sectors vis-à-vis the overall strategy undertaken to enhance growth and employment. The prolonged slow growth of manufacturing employment in Bangladesh, the lack of diversification in the sector are important considerations in the country’s pursuit of structural transformation and inclusive growth. Besides, the pursuit of a strategy by which labour would seamlessly move to higher productivity modern sectors is confronted with various issues and constraints: * In economies like Bangladesh, where the initial stock of surplus labour is high, it would be difficult to rely solely on the modern manufacturing sector in ‘moving the demand curve for labour outward’ to absorb labour fast enough to raise the supply price of labour (Mazumdar, 1999). * A nascent, emerging modern industry sector can face its own ‘binding constraints’ that could stall the unbridled growth of the sector (Rodrik, 2006), and hence limit the mobility of labour. * Surplus labour is not a given stock. That is to say, any ‘unlimited labour’ theory should not rest on the premise of getting some of the workers out of agriculture without affecting production in a timeless analysis. Industrial development occurs over time and the real problem of employment needs to articulate a strategy of creating job opportunities through multiple avenues, and not simply by diverting the unemployed and underemployed from agriculture. Given the slow growth of industrial employment, and limited opportunities of productive and remunerative employment in agriculture, employment has been growing rapidly in the non-farm activities in Bangladesh, which we shall examine shortly. It is noteworthy that the analytical and empirical literature on the role of RNF activities/enterprises is rather scanty, since much of the development paradigms were confined to exploring agriculture industry resources and labour flows, and subsequently led to the burgeoning literature on the catch-all informal sector. According to Lewis’s postulation, the subsistence sector was seen as a provider of raw materials and wage-goods (marketable surplus), while the modern sector expanded continuously to absorb unlimited surplus labour from agriculture until a full-employment equilibrium was reached. A standard criterion used to capture this structural transformation in an economy is the extent of inter-sectoral shifts in the employment of labour, largely from a low-productivity (agriculture) sector to a higher productivity (industry) sector, and following Clarke-Fisher, to a more modern services sector. As can be evinced, within the traditional three-sector framework, the agriculture sector’s share in national value-added has declined considerably but its share in total employment remains persistently high (nearly 41 per cent). There is hardly any analysis of inter-sectoral employment to establish whether the current growth is associated with strong trends in labour movements, especially from low productivity agriculture to higher productivity manufacturing (and/or services sector). Given the land and food scarcity that existed since its independence, Bangladesh pursued a concerted policy towards the growth of food agriculture. A progressive policy stance and a significant growth in food agriculture is often critically related to growth and flourish in RNA (as observed in the East Asian countries during the early stages of their development22). In Bangladesh too, a rapid intensification in food-agriculture23, that was intermediated through various policy and pervasive intervention measures (e.g. inter alia input subsidies, irrigation programmes, price support, extension services), greatly supported attainment of near self-sufficiency in food production. As labour productivity in agriculture and intensification of cultivation have increased extensively, it has also led to increases in the supply price of labour. Since FY2006–07, there has been a distinct upward trend in real wages in agriculture in Bangladesh, although it has dipped somewhat in the past two years.

Source of Information: CPD Working Paper-116, August-201

Article Link (Online Journal):

Funding Source:

1.

Budget:

Total Budget (Tk.) :

Achievement/Findings:

The above discussions and empirical findings, reviewed from various secondary and survey-based studies, underscore consensus on the growing importance of RNA and RNF employment. Despite the dearth of systematic trend data on RNA, there appears to be irrefutable evidence that RNA has been establishing an unmistakably growing presence in the rural economy of Bangladesh and that RNF employment has been rising quite rapidly. The evidence that is gathered from the above can be summarised as below: * The employment share of RNF in total rural employment has increased. * Productivity in most RNA enterprises (goods and services) appears to be higher than in agriculture, implying a ‘pull’ in labour mobility. * Similarly, income elasticity of demand for RNA goods and services are largely higher than unity; labour productivity level has grown, (although still not as high as some of the East and Southeast Asian neighbours), which has boosted growth of RNA and employment. Such labour productivity has been brought about by the intensification of food agriculture. * Agricultural productivity (and diversification), together with non-farm employment, has helped raise wages and rural household incomes. * Remittances are now a significant source of average household incomes in the rural areas, though there are enormous variations in the amounts received across the households and the regions. The growth of non-farm enterprises is often contingent on a robust agriculture sector. Sustaining agricultural growth and its diversification could provide significant support to the RNA, both through its inputs as well as through increased income and demand for non-farm products. Integrated rural and development policies would also bolster RNA by linking sectors and markets, and would also help disperse rural activities and incomes in the rural areas.

Knowledge Management: Report/Proceedings