ISLAMABAD, March 23: The World Bank has asked the government to reduce the hiring and firing costs of permanent workers to improve the productivity and international competitiveness of Pakistani exports.

In a confidential report, the bank said Pakistan would have to significantly improve its labour market outcomes by providing more jobs in order to reduce poverty. It criticised the practice of providing jobs in the public sector or allowing migrations abroad.

It said the public sector jobs benefited only a few and created unsustainable fiscal pressures, while the migrations brought significant income and foreign exchange but this was a limited answer and dependent on entry restrictions in foreign countries.

“To improve workers’ earnings in Pakistan, better jobs and higher productivity is needed at home,” it said.

The bank said that one aspect of the importance of long-term employment relationship to the productivity and international competitiveness of industry was that heavy reliance on temporary employment undermined the incentives workers and firms would have to participate in or sponsor on-the-job skill formation.

As a result, although far higher proportion of Pakistani firms reported skill shortages, only 15 per cent of them sponsored on-the-job training, which was very low, even by developing country standards, it said.

It called for reducing hiring and firing costs, which required changes in legal provisions and implementation process. “Specifically, it should lower severance payments and reduce time required to report and resolve industrial grievances by simplifying and streamlining dispute arbitration and litigation rules.”

The bank suggested removing time limits on term contracts. Pakistan permitted term contracts for a maximum of nine months for jobs of a temporary nature. Countries like China, Malaysia, Singapore and New Zealand placed no limits on the duration and fixed-term contracts, and in so doing increased job opportunities for workers, the bank argued.

It noted that while the growth rate of the economy had been improving, job growth remained slower than the increase in the labour force. And there was little indication that the slow growth of job creation was compensated by improvement in the quality of jobs; in-fact, wages in existing jobs were low, especially in rural areas, and had stagnated in real terms over the past decade.

It said that formal sector jobs were scarce; most workers were either self-employed or employed in the informal or agricultural sectors, often at very low productivity. There had been no trend towards rising formality. Nor had there been a trend towards industrialisation.

The share of workers employed in manufacturing and mining at 13 per cent was the same as it was 20 years ago.