Sluggish economic growth hits employment

Tshering Dorji

A trading house based in Thimphu laid off 20 employees, closed two units of its business and has entered a steep cost-cutting mode recently.

“We are struggling to stay afloat because of the downturn in the economy,” said the proprietor.  “If the situation does not improve soon, we will be compelled to lay off more people. If this trend continues other companies and firms will also cut down their expenses.”

With economic growth directly linked to job creation, the impact of a GDP growth rate that hit a four-year low at 3.4 percent, is being felt across all sectors.

 

 

The Royal Monetary Authority’s (RMA) annual report, launched last week, validated that economic deceleration has adversely affected employment prospects, particularly youth unemployment,   which touched a historic high at 15.7 percent in 2018.

“The persistent slowdown in economic growth for the past two years limited job creation, resulting in overall unemployment rate of 3.4 percent (or 10,414 persons), highest since 2010,” the report stated.

It further stated that the key factor for growing unemployment in the market was due to demand side constraints and skill mismatches reducing the output and fall in investment.

On the supply side, more than half of the unemployed labor force either lack appropriate experience or required qualification and skills for available jobs. The RMA concludes that the combined effect of labor market mismatches and lackluster economic growth caused higher unemployment level in 2018.

In addition, private sector employment still remains less attractive for job seekers. In 2018, more than a third of the unemployed labor force (or 7,253 persons) preferred jobs either in civil service (55 percent) or public corporations (15 percent) compared to total labor demand of 2,166 (civil service: 1,444 and corporations: 722).

Despite constant efforts made for private sector development, labour market in the private sector still remain less attractive due to job insecurity and non-competitive employment benefits compared to the civil and corporate job market.

Figures reveal that more than half of the unemployed remained without job for more than 12 months – long-term unemployment. During the last five years, of every 10 unemployed persons, five were in search of work for more than 12 months. Youth, in particular are exposed to long-term unemployment. In 2018, 47 percent of youth were in chronic unemployment group.

 A unique scenario

Despite increasing working-age population, labour force participation rate remains more or less constant.  In 2018, a total of 185,694 potential workers remained out of the labour force, largely students (43 percent), attending family duties (28 percent) and old age (15 percent). In terms of age, youth population in the age group 15-24 years comprises 48 percent of total inactive population followed by old age population above 65 years (18 percent).

While agriculture is still a principal economic activity in rural areas generating more than half the total workforce, due to gradual economic transformation from agriculture to industry to service sector, employment in agriculture has been steadily declining from 59.6 percent in 2010 to 54 percent in 2018.

Labour productivity in the agriculture sector is also comparatively lower than industry and service sectors. Driven by the electricity sector, which is capital intensive in nature, labour productivity in the industry sector is higher than the agriculture sector.

Overall, employees work 53 hours per week at national level whereas workers in agriculture, industry and services sector work 54 hours, 51 hours and 53 hours respectively.

This is higher than the international standard of maximum of 40 hours per week.

Measured by sectoral output to hours worked, labour productivity in industry and service sectors are 17 and nine times higher than the agriculture sector. Average income of a worker in agriculture sector amounted to Nu 63 per hour compared to Nu 1,060 per hour in industry sector and Nu 560 per hour in service sector. “This shows high income disparity among the workers across sectors. Majority of poverty-stricken population are also found in the rural areas who are largely dependent on the agriculture sector,” the report stated.

“In such a situation, reallocating labour from the agriculture sector to more productive sectors will enhance economic output without requiring additional production inputs,” the RMA recommended.

The estimated underemployment rate has increased from 2.8 percent in 2010 to 6.1 percent in 2018 with the rate higher in rural sector, comprising 87.8 percent of total underemployment in 2018 (18,200). The main reason for increase in underemployment is financial needs, as earning from the given employment is inadequate to meet economic needs.

Employment is still dominant in the informal sector. Of the total, 73.6 percent are working in the informal sector and only 26.4 percent are in the formal sector. The informal sector employment is largely distributed in the rural areas in agriculture.

Employability in formal sector was found to increase with education level and about two thirds of informal employment are those with either no formal education or with minimal education level. This, according to the RMA reflects how disparity in education affects the quality of employment in the labour market.

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