Factor Underutilisation and „Jobless Growth‟ in Manufacturing: Evidence from Pakistan

Abstract

During the past decade, Pakistan has experienced jobless growth with the employment growth in its manufacturing sector lagging behind the growth in its GDP. This is of concern as Pakistan‟s growing labour force, lacking social safety nets and financial assets, rely on employment as their sole source of income. Thus employment is the main link between economic growth and poverty reduction. This paper aims to investigate the nature of this job-less growth by using the Levinsohn and Petrin (2003) methodology to estimate the production functions for the industries and calculate the extent of labour underutilisation in the manufacturing sector, with a distinction being made between production and non-production labour. Our hypothesis is that labour under-utilisation may be one of the driving factors behind this jobless growth. Finding lower than optimal employment for production and non-production workers across different industries and regions, it further tries to establish the possible links between factor utilisation, productivity and other industrial characteristics. Policy recommendations are made on the basis of this analysis.