With a labour force growing at between 3 and 3.5 percent and an economy mired in
stagflation—with growth averaging just over 3 percent in recent years, together with doubledigit
inflation—Pakistan faces a daunting challenge in providing not just more but better jobs to
its young entrants into the labour market. While reviving economic growth and restoring
macroeconomic stability remain the top priority of the government and policymakers in the
immediate future, the real medium- to long-term challenge is to move the economy onto a
trajectory of not just high, but also inclusive and sustainable, growth.
The central issue that this paper analyses is the role the manufacturing sector can play in
reviving and sustaining growth while generating more and better job opportunities as it has
done in the fast-growing East and Southeast Asian economies. Indeed, it is believed that
employment in manufacturing—relative to other sectors and forms of employment—can
generate not just better but also more decent employment opportunities in terms of wages,
degree of social protection, a voice at work, and protection of workers’ fundamental rights.
An area of concern is that, while manufacturing has served as a major driver of Pakistan’s
economic growth in the past, this role is now showing distinct signs of declining. Its
contribution to employment generation has, after a rapid increase, also slowed down as
reflected in the sector’s share of the total labour force, which has stagnated at around 12 to 15
percent over the past few decades. Within manufacturing, the formal or large-scale
manufacturing sector—the harbinger of the creation of better employment opportunities—has
contributed a very small portion of the jobs generated, despite accounting for over 80 percent
(in 2005/063) of the value-added generated by this sector. With a further slowing down in
manufacturing, especially large-scale manufacturing, even this limited capacity will be
curtailed.
This paper analyses both these important issues in some depth. It reviews the evidence to show
that the contribution of the manufacturing sector to economic growth and employment
generation has slowed down and identifies the major factors responsible. It then examines
whether these obstacles can be overcome and proposes policy measures that would help revive
the role of manufacturing—especially large-scale manufacturing—in driving economic growth
and generating jobs.