Economic Liberalisation and Employment in South Asia

The main objective of this paper is to examine the impact of economic liberalisation on employment and labour incomes in South Asia. Specifically, it examines the impact on employment growth (total, agriculture, industry), unemployment, real wages, wage inequalities between skilled and unskilled workers, women’s employment and child labour. It also analyses whether labour rigidities have affected the employment growth in South Asian countries. The paper is divided into six sections. Analytical and theoretical issues on the subject of liberalisation and employment are presented in Section 2. The study proposes some hypotheses on these issues. They provide a backdrop for the empirical evidence presented in Section 3. We have used ‘before’ and ‘after’ approach in the empirical analysis. Some results based on CGE models for India are also presented. The conclusions from empirical evidence can be summarised as follows: GDP growth seems to be slightly higher after liberalisation except in Pakistan. The impact of external sector liberalisation may not be insignificant in South Asia as exports and imports rose faster than GDP in the region as compared to those for Sub-Saharan Africa and Latin America. The share of informal sector increased particularly for services in India. The rate of growth in private sector employment increased faster than in the public sector. The share of private sector in total capital formation in India increased significantly after liberalisation. There was jobless growth for 1980s in the manufacturing sector for South Asia. The manufacturing sector showed higher growth in the 1990s for India. Micro surveys show some concern regarding retrenchment of workers in manufacturing employment. Unemployment rates showed a mixed picture. It declined for India and Sri Lanka while it rose in Pakistan, Bangladesh and Nepal. Incidence of poverty by workers in India shows that it declined for all workers but the rate of decline was lower for casual workers. Real wage growth for agricultural labourers was lower after liberalisation. Inequalities in income and consumption increased in most of the countries in the post-liberalisation period. The results from CGE models also show that inequalities increased. Women’s participation increased but it is not clear whether they are better off in terms of work load and income. Child labour declined at macro level. One may have to go beyond poverty in explaining the variations in child labour.Section 4 analyses future scenario of employment and policies needed for raising productive employment and labour incomes. An agenda for research is presented in Section 5. More micro studies are needed to fully understand the impact of domestic and external liberalisation measures on employment and wages.