As we move into another year of a Covid-affected global economy with extreme local consequences in the form of rising inflation and low growth, it is pertinent to consider what the opportunities look like for Pakistan’s young population in the years ahead.

Have the structural imperatives changed appreciably for us to expect a high-growth future and allow us to benefit from the elusive demographic dividend?

First, let’s consider how our population structure and movement trends look like at the moment.

According to the 2017 census, 64 per cent of the population is younger than 30, and 29pc of the population is between the ages of 15 and 29. Out of those younger than 30, a full 90 million people or 65pc live in rural areas.

Furthermore, according to Pakistan Social And Living Standards Measurement (PSLM), rural to urban migration is showing a downward trend in Khyber Pakhtunkhwa (37.6pc to 30.7pc) and Balochistan (14pc to 1.9pc), and an upward trend in Punjab (14pc to 14.2pc), while migration levels remain the same in Sindh (at 6.4pc) during the period 2017-2018 as compared with the period 2018-2019. Therefore, one can conclude that our “youth bulge” is mostly located in rural areas and will remain increasingly so in the years to come.

The question that then arises is: are we creating the right conditions for the youth to succeed in labour markets of the future? The answer is unfortunately not particularly promising.

Despite having 187 million cellular subscribers, 3G/4G and broadband penetration remains below 50% and remains concentrated mainly in the urban areas. According to outlets such as the Economist, Covid has moved us into a “hybrid” future of work where opportunities are becoming more democratised and accessible from anywhere in the world. Yet this world of opportunities remains largely inaccessible to our youth which are now increasingly choosing to stay put in rural areas.

It is also important to consider whether the domestic market is providing our youth opportunities to succeed. Many of us believe in the power of education as a ticket to opportunity. However, according to the Labour Force Survey 2018-2019, the labour market outcomes of even our domestic graduates do not paint a pretty picture.

Policy implications

Policymaking has tried to keep pace with the challenges. Pakistan has launched the National Freelancing Facilitation Policy with an overall focus on increasing IT exports which are expected to reach $3.5 billion by 2022. The idea has been to exploit our favourable cost structure, due to our abundant labour, and export the surplus abroad. This requires either the youth to move to cities en-masse or the government to help provide the right conditions for youth to find employment where they reside, which is primarily in the rural areas.

While migration to large cities can be a force for good, this cannot be a sustainable long-term strategy. Those who move face a loss of social network and difficulties in finding a job. Further, affordable housing remains elusive with skyrocketing rents which comes with an inability to put down long-term roots.

According to the United Nations Human Settlements Programme (UN-HABITAT), as of 2017, 40pc of the urban residents in Pakistan reside in slums which is exactly where low-income migrants find themselves after migration. Initiatives such as the Naya Pakistan housing project remain beset by development delays that have traditionally meant a wait of 10-15 years for possession of a housing unit.

Towards inclusive growth

What then can we do to promote inclusive growth that serves our youth?

First, we must recognise that the future of Pakistan is going to be decided by investments that focus outside of the big urban areas. Nasir, Tauheed, and Haider show in their paper that second-tier cities such as Haripur in Khyber Pakhtunkhwa, although they have lower GDP than major cities such as Peshawar, are more inclusive and the inhabitants have higher welfare outcomes. Therefore, investments in improving human capital and infrastructure of these second-tier cities will have better returns compared to those made in existing megacities.

Second, we may consider adopting what’s known as the “good-jobs development model” proposed by Professor Dani Rodrik and Professor Stefanie Stantcheva of Harvard University. They argue that conventional standalone welfare state policies on education, training, progressive taxation, and social insurance are inadequate in addressing the challenge of increasing growth while reducing inequality. They propose a “multi-pronged strategy aimed directly at the productive sphere of the economy and targeting an increase in the supply of ‘good jobs’ —jobs that provide a middle-class living standard, a sufficiently high wage, good benefits, reasonable levels of personal autonomy, adequate economic security, and career ladders.”

The figure below illustrates the argument.

The "good-jobs" model

What then does the application of the “good-jobs development model” look like in Pakistan’s case? This involves a specific approach to labour market policies and innovation policies.

First, a focus on active sectoral labour market policies is important. These are programmes that aim to increase the beneficiaries’ prospect of finding employment or increasing earnings. These sectoral programmes take into account the needs of local employers and include them as key stakeholders in policy design. These should be targeted towards employers and industries that have the highest growth potential in a given area. For job seekers, they provide an array of services that facilitate better matching with local employers.

These services can be differentiated based on the potential productivity of the employees. If the employee is considered middle-to-high productivity, soft-skills training and credentialing will help create a better match with the employers. This approach takes both the employer and employee as clients and facilitates better outcomes using partnerships with educational institutions and trade bodies.

Policymaking seems to be oriented in this direction already in export-oriented industries such as IT with the planning of industry-readiness bootcamps in the pipeline. Based on previous track record, these interventions would have to be executed extremely well in combination with other support (credentialing, training, soft-skills training) to make a dent.

For low-productivity employees, this should ideally include investments in education and health in the “pre-production” phase.

According to a study on human capital formation, while average years of education in Pakistan increased from 5 years to 9 years between 1990 and 2016, effective health status remained largely constant from 43 to 45, with 100 representing perfect health.

Possible remedies include targeted interventions for disadvantaged households and lagging populations. This may take the form of local seasonal migration that helps reallocate labour to areas in need from areas where unemployment is high and prospects are poor.

An example of this is the Bangladeshi programme which included the provision of an $8 cash grant or loan to mitigate the cost of moving, as well as provision of information about (and endorsement of) migration. It was found that seasonal out-migration had large benefits in terms of consumption and caloric intake for seasonal drought-prone households.

This kind of targeted migration incentivisation and information provision will help move human resources to cities with best income growth prospects. In addition to opening up newer internal migration pathways, this could augment existing temporary flows from southern Punjab and the mountainous areas in KP to agricultural lands in central Punjab.

The second integral part is a focus on innovation policies that incentivise labour-friendly technologies. Despite all the hype around IT services or freelancing opportunities, they cannot absorb the huge numbers of Pakistani youth that are entering the labour force every year. Employment-friendly technologies — those that augment rather than replace labour — are a much better solution in Pakistan’s context.

The gap between skills and technology can be closed in one of two ways: either by increasing education to match the demands of new technologies, or by redirecting innovation to match the skills of the current and prospective labour force. The latter is a strategy that gets limited attention in policy discussions, however is worth taking more seriously. It may be possible to direct technology to better serve the existing workforce’s needs, in addition to preparing the workforce to match the requirements of technology.

In conclusion, all is not lost — the demographic dividend remains there for Pakistan to take advantage of and rejuvenate the sputtering economy.

However, in addition to investments in education, health and human capital of its youth, there remains a huge role that needs to be played by policy to promote inclusive and sustainable growth, with a geographic focus on places where young Pakistanis are choosing to build their lives. Policymakers must contend with the concurrent challenges of rising youth unemployment and stasis in the formal sector through active sectoral labour market and innovation policies that incentivise labour friendly technologies.

Header illustration by Rohail Safdar

The Analytical Angle is a monthly column where top researchers bring rigorous evidence to policy debates in Pakistan. The series is a collaboration between the Centre for Economic Research in Pakistan and Dawn.com. The views expressed are the authors’ alone.