Unemployment: A Hole in the System

By: Jawaid Bokhari

In the struggle for survival of the fittest, companies are engaged in a massive effort to increase efficiency and productivity to face global competition and are trimming their work force.

The corporate umbrella for lifetime employment is giving way to a flexible labour market. On the horizon is a jobless economic growth and recovery. Some see a hole in the system.

A growing labour efficiency allows companies to accomplish more, with fewer people. Productivity gains cut unit labour costs and boost profit margins even in times of depressed prices. Capital spending on latest technology and automation increases productivity with fewer hands. Investments focused on efficiency in existing businesses, do not improve the employment scenario.

As policies are being developed to create a flexible job market, the wage-labour system on which capitalism has traditionally thrived and that provided life-time employment in corporates, is being replaced by outsourcing, contract jobs and temporary hands. Corporates are no longer in a position to offer a permanent umbrella for their staff.

Some economists foresee permanent employment being more and more substituted by temporary/contract jobs specially those related to IT industry.

This is true for Pakistan, as it is valid for United States and other western economies. Even the fastest growing Chinese economy is not totally immune from it.

Jobless economic growth can be explained by capital- intensive investments made by many industries including textiles, banks, oil exploration and drilling which do not create employment, if they do not reduce the jobs. According to a research report of a foreign bank, last year's economic growth of 5.1 per cent has been a jobless one.

In the US, three million jobs have been lost since President Bush assumed office. And the short-term economic recovery, seen now, is a jobless one. Unemployment stands at 6.1 per cent.In China, with a stable annual growth rate of 8-9 per cent, only half of 2002 year's college graduates-1.5 million young people found work, the lowest percentage since 1996.

Unemployment in Pakistan at 7.8 per cent can be explained by a variety of factors including faulty economic growth model. Jobs were lost first by closure of hundred of sick units and then thousand of redundancies declared by national commercial banks and public corporations like the Pakistan Steel Mill.

To cut costs, companies have shifted from their head offices from city centres to factory sites and in the process reduced their staff numbers at head offices. Foreign pharmaceuticals trimmed their manpower needs by mergers decided upon by their parents.

In textiles, the largest industrial segment, the labour required has been cut drastically. Weaving, designing and dyeing sections have been computerised that have reduced labour strength by 25-30 per cent. But garments, made-ups etc are value-added and labour-intensive industries that are growing.

The automobile industry has benefited from lease financing and its output is up by 50 per cent. Pak-Suzuki says it has increased its labour strength by 150 and Toyota Motors claims that it has doubled its employee strength to 1200. But the auto boom based on bank finance cannot be sustained in the long term.

In public sector, development spending slided as the government tried to grapple with fiscal and current account deficits, impacting adversely on the employment scene. The depleted infrastructure could neither be refurbished nor new projects could be launched, in a meaningful way, to have a multiplier effect on the economy and create jobs. Even now, the major projects are few and the pace of implementation painfully slow. Social spending,vital for sustainable development, is a very low priority. The capacity for implementation of projects is poor.

Investments that could create new production capacity and jobs are at low levels. Privatization has diverted capital spending into existing capacity. The sluggish market has forced many foreign banks to close down their branches that includes Bank of America and smaller Arab banks. Multinationals which have trimmed their workforce, pay attractive salaries to professionals who are made to work 10 to 12 hours or more. In recent years,they have reckoned to have cut their staff by nearly 50 per cent.

Eminent economists watching the global unemployment trends say that new ideas are needed to create job opportunities In Pakistan, policy makers see small and medium -sized enterprises and housing as the source of future employment. Both construction and SMEs need a kickstart. Addressing the Small and Medium Enterprises Association recently, the consul-general of Switzerland Julius F. Anderegg said that SMEs form the backbone of his country's economy and have a strong political lobby and representation in parliament.

In his book, " A Stake in the Future" John Plender of Financial Times, London, says "in creating a more efficient economy, we have thrown away much of what makes capitalism tolerable. The promise of lifetime employment has melted away with the death of paternalism." " Economic efficiency has become an end in itself, creating a society fit for boardroom fat cats, but not much else. There is hole in the heart of the system."

In the US, the most developed market and the largest world economy, the situation is no different. In his column "The Creaky Job Machine" Robert J. Samuelson says that the economic "recovery" has yet to reach the labour market. By one government survey, the jobs are still dropping; by another , the unemployment rate has barely receded."

Jeffrey E. Garten, dean, Yale School of Management, has a far more worrying message to give: "There is a good chance that many of the jobs will never come back."

One reason is the growing labour efficiency that allows the American companies to accomplish more with fewer people. Such productivity growth averaged 2.6 per cent in 1996-2002, compared with 1.4 per cent in 1980-95. It has soared to nearly 7 per cent in the second quarter this year.

Looking ahead, Garten says even more labour-saving techniques will be embedded in every sector of the economy, spurred by advances in technology and by continuous pressure on cost cutting.

He warns that America could be heading for an employment debacle that won't be overcome-at least at tolerable social cost- -if everything is left to the market or to the current government programmes that are scattered and under funded.

In a recent study on cyclical and structural factors, Erica Groshen and Simon Potter, economists at Reserve Bank of New York, point out that" workers, laid off but who returned to the same employee, played a significant role in four recessions before the 1990s. In the two most recent downturns, those of 1990-92 and 2001, they figure little. It may take longer than expected for job figures to rise, since they will have to be new jobs, often in new industries."

Source: www.Dawn.com

Date Created: 10/11/05

Date/Time Last Modified: 10/11/2005 12:50:02 PM

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