Structural Change and Dynamics of Labor Markets in Bangladesh

Bangladesh economy has undergone significant structural changes over the last four decades. The share of agriculture in GDP has declined from over 60% to less than 20%, while the relative significance of industry (including manufacturing), currently estimated to be 28% of GDP, and service sectors has increased substantially. The composition of the manufacturing sector during the 1990s and 2000s has become increasingly readymade garments (RMG) oriented. Driven by the expansion of the RMG industry, the share of employment in the manufacturing sector in Bangladesh rose from 9.5% in 1999–00 to 16.4% in 2013. As found in all low-income countries, the unemployment rate does not accurately capture deficiencies in the labor market (the rate was just 4.3% in 2013). Rather, the majority of workers are found in informal employment and suffer from under-employment. Gender disparities persist despite the rise in the share of female workers. In summary, robust economic growth in Bangladesh has been associated with both positive trends and persistent employment challenges such as lack of diversification, poor working conditions, low productivity, and a high degree of informality. Against this backdrop, this paper analyzes the nature of structural transformation in Bangladesh and elaborates on the major challenges for future growth acceleration and employment creation.

With a small geographic size and huge population, employment generation for all economically active population is a major challenge in Bangladesh. Though agriculture has been the major employment generating sector, the rural economy in Bangladesh has been experiencing a transition over the past two decades. While unpaid family work in the rural areas is still highly farm-based, paid employment is mainly experiencing the transition, shifting more towards the nonfarm activities. World Bank (Summary report. Vol. 1 of Bangladesh—Promoting the rural non-farm sector in Bangladesh, World Bank, Washington, DC, 2004) reported that the rural nonfarm sector in Bangladesh accounted for about 40% of rural employment during early 2000s. Recent labor force surveys reveal some strong evidence of growth in the rural nonfarm economy. The growth of the rural nonfarm sector is very evident, because, with the limited arable land and intensification of the ones that are available reaching its peak, agricultural sector is least likely to absorb the growing rural labor force. With these contexts in frame, the current paper provides an overview of the potential determinants of the nonfarm participation in rural Bangladesh, and makes a systematic analysis of the determinants of employment-switch between farm and nonfarm sectors in rural Bangladesh. In this paper, we use data from the Household Income and Expenditure Surveys (HIES) of Bangladesh Bureau of Statistics (BBS) as the HIES data provides detailed household-level socioeconomic information, which is helpful for such analysis.

In rural Bangladesh, a great challenge is to tackle the low pay, poor-quality jobs that are unrecognized and unprotected by law, widespread underemployment, the absence of rights at work, inadequate social protection, and the lack of representative voice. There is no denying the fact that efficient labor markets can contribute to raising the quantity and quality of employment. However, there remains a big question whether poverty in rural Bangladesh is concentrated in certain employment categories. Against this background, this paper examines the link between different forms of employment and well-being of rural households in Bangladesh. This paper uses the data from the Bangladesh Integrated Household Survey (BIHS) of IFPRI. This data are nationally representative data of rural Bangladesh for the year 2011–2012 where the sample size is 6,500 households in 325 primary sampling units (PSUs). The reason for using the BIHS database for this study is that this is the latest available survey data on rural Bangladesh. This study has attempted systematic analysis in understanding the association between employment status and well-being of rural households in Bangladesh. From the BIHS data, the study has used consumption expenditures as the principal indicator of household economic status or well-being and has used per capita consumption expenditure as the proxy for income. The total consumption expenditure is measured as the sum of total food consumption and total nonfood expenses excluding lumpy expenditures. Income (expenditure) deciles have been created by dividing the households into ten groups from the lowest to the highest in terms of households’ total income. Employment statuses have been constructed for those household heads who are able and eligible to participate in the labor market. By definition, the labor force consists of everyone above the age of 15 who are employed (including individuals working without pay) or unemployed but actively seeking employment. Household head, not counted in the labor force, includes students, retired people, disabled people, and discouraged workers who are not seeking work.

Bangladesh has experienced moderately sustained economic growth (annual GDP growth of 6–7%) over the past two decades, as well as a fairly rapid demographic transition that began earlier, leading to sustained and steep declines in fertility levels and mortality rates. An accompanying feature of these socioeconomic trends has been the rising participation of women in the labor market, with the female labor force participation expanding from around 8% in the mid-1980s to 30% in 2010. While rising female labor force participation in Bangladesh denotes progress for women in a relatively conservative society, and has significant implications for economic growth and poverty alleviation of the country, there remain critical aspects that need examination. First, women’s workforce participation is still very low compared to men’s, despite the fact that women attach value to having their own independent incomes. Moreover, compared to men, women remain locked into fewer sectors and types of activities that offer fewer hours of employment and lower remuneration. Often, women have little choice but to contribute as unpaid labor to the family enterprise. Second, and related to the first, is that increase in formal school enrolment, better health, lower burden of childbearing (more time) are not translating into secure full-time employment, indicating that expansion in participation is supply driven rather than demand driven. Hence, female labor market participation and its dimensions deserve an in-depth analysis from both an academic point of view and also from a policy perspective. In this paper, we attempt to examine the change over time in the nature of the female workforce and to identify factors affecting the labor supply decision of women in Bangladesh using Labor Force Survey data of several rounds (2005 and 2010 in particular) conducted by the Bangladesh Bureau of Statistics.

The informal economy refers to activities and income that are partially or fully outside government regulation, taxation, and observation. The main attraction of the undeclared economy is financial. This type of activity allows employers, paid employees, and the self-employed to increase their take-home earnings or reduce their costs by evading taxation and social contributions. On one hand, informal employment can provide a cushion for workers who cannot find a job in the formal sector. But on the other hand, it entails a loss in budget revenues by reducing taxes and social security contributions paid, and therefore the availability of funds to improve infrastructure and other public goods and services. It invariably leads to a high tax burden on registered labor. Like many developing countries, the urban formal sector in Bangladesh is not able to provide enough job opportunities for its growing labor force. The growing labor forces can easily find themselves in the urban informal sector for their livelihoods. Therefore, urban formal sector has gained much attention to the policymakers for its important significance in the economy. In this context, it is very important to understand the dynamics and different issues of this urban informal sector, so that better policies can be designed to address the requirements of the workers engaged in these sectors. Against this background, this study provides a detailed overview of the urban informal sector in Bangladesh and explores the factors that affect the decision of the individuals to enter into the urban informal sector.

Bangladesh has entered the window of population dividend opportunities from 1991 onward as the dependency ratio decreased. However, the expressed time of the window of opportunities is not bolstered by observational confirmation. The absence of certain proof on the period and extent of the demographic dividend is a gap which policy-makers must address when setting needs for human resource and capital investment to gather the economic advantages of the demographic move. Applying the methodology of National Transfer Account (NTA), this study is an endeavor to fill this gap by indicating so as to evaluate the demographic benefit for Bangladesh. Therefore, the objective of the paper is to evaluate the first demographic dividend in Bangladesh and to explore the conditions to appreciate it.

Social protection programs in Bangladesh have primarily targeted at reduction of poverty in the country. Various social protection programs address the issues related to basic needs of the people. There are some programs which are directly linked to the recipient of social protection and his or her participation in the labor force. However, experiences from different countries show that different social protection programs, even if they are not directly linked to any employment activities, can have important implications for labor force participation of the individuals of the households under the coverage of any of those programs. In context of labor force participation (LFP), the scenarios for male individuals are different than that of female ones. Over the last few decades, the male labor force participation has been observed well above 80%. Along with the economic growth, female labor force participation has also increased to around 36% in 2010 (Labor Force Survey). However, the growth in female LFP is still very low. The study allows the scope to find the potential for the rise in female LFP in Bangladesh. Increased LFP can have significant implications for economic growth and poverty alleviation. Among different policies, programs and economic activities that can improve female LFP, association with any social protection programs is a significant factor.

In the arena of economic literature, it is now well established that economic growth is a necessary but insufficient condition for development (Sen 1999). In addition, increasingly, there is a consensus among academicians that employment creation as such does not guarantee social, economic, and political inclusion or basic human rights as chartered by the UN system. Within this context, the focus of the policy exercise has shifted from mere economic growth approach toward a broader approach of inclusive growth. The International Labor Office’s “Decent Work” agenda replicates the importance of such a context. Although the decent work agenda has been initiated since 1999, the ongoing current literatures are highly concentrated either on policy implications or depict the decent work agenda from a macro point of view. Majority of the studies conducted on decent job primarily focused on the demand-side issues. However, there is a need to explore the supply-side issues as the composition of labor supply itself can be a determining factor for the status of the decent job. This article follows the definitions of “good-enough” job, “good” job, and “decent” job from Raihan (2014) where it is argued that there could be three stages for moving toward “decent” job. The first stage is the “good-enough” job which shows the transition from no job to job or from unpaid family job to paid job. The second stage is the ‘good’ job which shows the transition from ‘good-enough’ job to job with better return, formal job security, and enhanced workers’ rights. The third stage is the “decent” job, which is the transition from “good” job to a state of productive employment in compliance with agreed international standards of working environment and workers’ rights.

Skilled workforce is the fundamental requirement for the growth and development of an economy. Hence, training programs are considered to be a potential solution to address the problem of lack of a skilled workforce. For a country like Bangladesh, skill development programs are of top policy importance; and adequately planning for such programs are crucial policy concerns. The country is currently enjoying the youth bulge or popularly known as demographic dividend—a large youth workforce (especially workforce aged 15–24) compared to its dependent population. The age dependency ratio (percentage of working-age population) of Bangladesh is higher than Sri Lanka, India, and Bhutan in South Asia. However, the 2010 Labour Force Survey (LFS) of Bangladesh noted a worrisome fact that 39.22% of these workforces are uneducated. Given the education level and resulted lack of skill of this particular workforce, training programs need to emphasis more on the proper planning and targeting issues to address the demand and supply nexus of the skill-shortage, to make the youth labor contributing more to the development of the economy. To address this immediate need of skill-shortage, many private sector interventions—along with public sector—have been conducting various training programs. However, these training programs (even when offered free-of-cost) face a large attrition rate-many of those who sign-up, do not show-up for the actual training sessions. Various studies have pointed out issues like distance, lack of information, backwardness, social taboo, and lack of networking as important impediments for training program take-up rate. However, there is hardly any study to address the importance of the training program schedule with local agrarian seasonal patterns, which have important targeting issues for the implementing authorities. However, training programs—both public and private—do not typically pay attention to this seasonality and as a result suffer from issues like attrition, discontinuation, and dropout. To address this important topic systematically, we focus on the northern part of Bangladesh where agriculture is the main source of earning. Distinct seasonal patterns exist in the northern Bangladesh. In this study, using survey data on the sample selection for a training, we focus on the timing of the specific type of training to examine how seasonality makes a difference in participation. To the best of our knowledge, there exists no rigorous study to understand the seasonality impact on the sample selection of a training program.

In Bangladesh, remittance plays an important role in terms of its contribution to the gross national income and foreign exchange earnings, as well as its significant positive impact in reducing poverty both in the rural and urban areas (Raihan et al. 2009, 2014; Raihan and Sugiyarto 2012; Raihan and Uddin 2011; Khondker and Raihan 2009). Bangladesh is a major exporter of labor, and remittance is the second highest foreign exchange earning sector in this country. Not only international remittance, domestic remittance too has its own contribution to national income. In 2014, personal remittances received (which includes both domestic and international remittance) as a percentage of GDP was 8.7% (World Bank 2016). Though remittance is an asset for the country and it can further be transmitted to the development of the socioeconomic infrastructures of the country, members from the remittance recipient households can have a disparate preference towards the labor market participation decision compared to the non-recipient households. Hence, remittance could be one of the major drivers behind the labor market dynamics in Bangladesh. Against this backdrop, this paper examines the influence of remittances (both international and internal) over the labor market participation behavior of the recipients in agricultural and nonagricultural sectors of Bangladesh. In this study, we have used the Household Income and Expenditure Survey (HIES) 2010 data for our analysis and relevant econometric exercises, as HIES 2010 is the latest available nationwide household-level data that has a separate section on household migration and remittance information.

A Social Accounting Matrix (SAM) is a generalization of the production relations and extends this information beyond the structure of production to include: (a) the distribution of value added to institutions generated by production activities; (b) formation of household and institutional income; (c) the pattern of consumption, savings, and investment; (d) government revenue collection and associated expenditures and transactions; and (e) the role of the foreign sector in the formation of additional incomes for households and institutions. In particular, the accounting matrix of a SAM identifies the economic relations through six accounts: (1) total domestic supply of commodities; (2) activity accounts for producing sectors; (3) main factors of productions (e.g., labor types and capital); (4) current account transactions between main institutional agents such as households and unincorporated enterprises, corporate enterprises, government and the rest of the world, and the use of income by the representative households; (5) the rest of the world; and (6) one consolidated capital account (domestic and rest of the world) to capture the flows of savings and investment by institutions and the rest of the world, respectively. Social accounting matrices can serve two basic purposes: (i) as a comprehensive and consistent data system for descriptive analysis of the structure of the economy; and (ii) as a basis for macroeconomic modeling. As a data framework, a SAM is a snapshot of a country at a point in time (Pyatt and Thorbecke 1976). To provide as a comprehensive picture of the structure of the economy as possible, a particular novelty of the SAM approach has been to bring together macroeconomic data (such as national accounts) and microeconomic data (such as household surveys), within a consistent framework. The second purpose of a SAM is the provision of a macroeconomic data framework for policy modeling. The framework of a SAM can often help in establishing the sequence of interactions between agents and accounts which are being modeled. A SAM provides an excellent framework for exploring both macroeconomic and multi-sectoral issues and is a useful starting point for more complex models (Robinson 1989). Against this backdrop, this study produces an updated SAM for Bangladesh for 2012 using the newly constructed Input-Output Table 2012, which supplemented with institutional accounts, macroeconomic aggregates, and the Household Income and Expenditure Survey. Using the updated SAM, this study develops the SAM multiplier model and explores the growth impact of injection into selected activities in the economy through that multiplier model.

Over the past three decades, computable general equilibrium (CGE) models have become an important tool for empirical economic analysis. CGE models offer a comprehensive way of modeling the overall impact of policy changes on an economy or a region by considering all production activities, factors, and institutions. Such models also include factors such as markets and macroeconomic components: investment and savings, balance of payments, and government budget. CGE models are applauded for being able to incorporate multiple economic linkages that often come handy in explaining trends and structural responses to changes in development policy. CGE analysis allows for the assessment of the impacts of exogenous shocks within a constrained optimization framework (Raihan, Infrastructure and growth and poverty in Bangladesh, 2012). At the core of the CGE model is a set of equations describing the behavior of various economic agents (such as firms and households) when faced with changes in relative prices. In an increasingly market-oriented economy, the variations in prices may be the most important sources of reallocation of resources among competing activities which then may alter the factorial income and hence personal income distribution. Changes in personal income distribution of household groups and consumer price indices may have different implications on the welfare and poverty situations of the distinct household groups. Against this backdrop, this paper employs the CGE model for the Bangladesh economy to explore the impacts of a set of policy and natural disaster shock scenarios. These include a rise in crop productivity, a rise in the demand for labor-intensive exports, a rise in the allocation for social protection to households, and a natural disaster shock. A Social Accounting Matrix (SAM) prepared for the year 2012 serves as the consistent and comprehensive database for the abovementioned exercises.