City University Research Journal

Volume 03 Number 01 June 2012 Article XX

Unemployment Reasons and Its Impact on Pakistan Economy

Sumera Akram, Shahzad Khan, Muhammad Nawab Khan & Muhammad Tufail
ABSTRACT
Unemployment is one of the most difficult social issues of market economics. The
unemployment shifts over the business cycles as understood as changes in aggregate
demand relative to aggregate supply. This paper deals with the information and the causes
of unemployment and its impact on the Pakistan economy. It also shows different aspects
and reasons for growing unemployment in Pakistan including its prevailing economics
crisis. The role of government is also taken care of to identify the causes of unemployment.
The research is conducted about the impact of unemployment on Pakistan economy. Study
identifies the economic reasons of unemployment in Pakistan, to search unemployment in
Pakistan and Effects of social economic impact on youth of Pakistan. The research gives
information of various reasons for unemployment and its impact on the economy of
Pakistan.
Key Words: Unemployment, Reasons for unemployment, and Pakistan Economy.
INTRODUCTION
Those who have abilities and the will to do work, but there is lack of opportunities to get job
are in the category of unemployed. When unemployment high resources are wasted,
peoples income are depressed. In the current situation the ratio of unemployed persons in
Pakistan is more than 12 percent which consists of 113 million peoples. (Nizami.S; 2010)
According to latest labour survey for 2008-09, the unemployment rate has increased to 55%
from 52% unemployment rate as 15 percent. (Khalil; 1999)
There are so many reasons of unemployment in Pakistan. The biggest reason is the
insufficient methods of production potential targets in almost all activities and branches of
agriculture. Agriculture contributes almost directly or indirectly (Farooq 2009-10)
Unemployment in agriculture sector is due to two main factors. Firstly, adaptation of latest
technology has decreased the demand for farm labour. Secondly the labour displaced
cannot be re-employed by other economic sectors due to low level of education, unskilled
to be used in industries and due to vicious circle of poverty. Because they do not have
enough resources to initiate small business venture on their own and be able to break his
vicious circle.
Causes of Unemployment
This part deals with the causes of unemployment and its impact on the economy of
Pakistan. Some of the major causes of unemployment in Pakistan are following;
Agriculture sector engages directly or indirectly 45% of the labour force and it also
contributes 23% to the GDP.
The main causes of unemployment in Pakistan are :
The first cause is unpleasant as well as unacceptable condition of law and order and because
of this serious situation foreign direct investment is sliding down,
In survey of Pakistan economically, in last year current decade FDI was minimum,
According to the international institute of Finance Direct Investment, FDI which fell 32%

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Sumera et al.

in 2009 is the reduction in Pakistan. In 2009 the FDI was $3.2 billion but in 2009-10, July to
April FDI was totally $1.8 billion which represent declines of 45 percent.
Agriculture is the second major sector for the maximum job provision in Pakistan, but
nowadays agriculture sector is facing several challenges such as water shortage, climate
changes and technological backwardness. This causes a decline in jobs. Almost 62% of
population living in rural areas directly or indirectly depend on agriculture sector. In 200910 the growth of agriculture production was 2% which was against the target of 3.8%.
The largest and biggest sector of the economy is industrial sector. 13% of total employment
depends on industrial sector which contributes 18.5% of gross domestic product. In
manufacturing the absorption on employment at around 13% has remained fairly stable.
Another main cause of unemployment in Pakistan is the economic depression of the world
combined with the terror of America, has reduced trade and industrial activity in Pakistan. It
has not only defaced Pakistan's image in the international arena but also doubled our
expenditures on Armed forces. Pakistan is not attracting new investment plus these factors
have put international investment at risk.
In 2007 American states spent $368 billion in research and development field. The amount
spent on research as well as education, create more specialized fields and generate more
opportunities.
Only 2 percent of the GDP has been spent by Pakistan on education according to 2010
budget which is quiet a small amounts as seen in the region context.
Other cause of unemployment in Pakistan is the rapid growth of population. At the end of
june 2009, estimated population is 1699 millions, in 2050, it is expected that Pakistan will
become the fourth largest nation of the world in population with growth rate of 2.06 percent.
At present Pakistan is sixth in worlds from population point of view.
The economy of Pakistan has been facing economic, social and political upheavals in the
recent past resulting in colossal monetary and material losses. To pinpoint a few, the energy
crisis is on the top. Not only the productivity and efficiency of the industrial sector has
suffered a lot, but it has also added to the suffering of human life human life. In such a
vulnerable situation it is no wonder that unemployment may creep up to an unmanageable
level.
Many other causes are the aftermath of the energy crisis. These include a marked decrease
in the productive capabilities of the industrial goods and services, the galloping rate of
inflation, low investment and low saving, causing the lowering of GPD of the industrial
sector. This took the unemployment rate to ever highest level during the past 60 years.
Types of Unemployment
This part deals with the various types of unemployment and nomenclatures used by
researchers and scholars.
Frictional Unemployment
Changes in individual market in the cost of Frictional or Temporary unemployment, for
example, new workers to search different jobs possibilities. Even experienced workers
spend a period of unemployed time for searching attractive jobs offering. The concept of
frictional unemployment is different concept from cyclical unemployment which is a result
of low level aggregate to demand with reference to wages and price from one place to
another.

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Sumera et al.

Structural Unemployment
When there are regional job vacancies but they do not match the pattern and skills of
workers, are the pattern of the jobs is different from workers skills.
Natural Rate of Unemployment or the Non Accelerating Inflation Rate of
Unemployment (NAIRU)
The constant inflation rate is called non accelerating inflation rate of unemployment. It has
no tendency for inflation to change. The accelerating inflation rate of unemployment is that
unemployment rate in which in the long run the Phillips curve is vertical.
Okun's law shows the relationship between cyclical movements in GDP and
unemployment. According to Okun's law, when the actual GDP, declines 2% relative to
potential GDP, the unemployment rate increases by about1%.
Demand Deficient Unemployment
According to Keynesian, any level of unemployment beyond the natural rate is due to
insufficient demand in economy. The period of recession, aggregate expenditure (AE) is
deficient causing the under utilization of inputs e.g. including labour.
According to Keynes, aggregate demand can be increased by increasing consumption
investment (I, government expenditure (G) or increasing the export (export minus import)
or (x-m).
Discussion on Pakistans unemployment rate
In December 2009, the unemployment rate reported in Pakistan was 5.05% from 1990 until
2009, unemployment rate in Pakistan was arranged 5.88 percent reaching at the tremendous
height of 8.27% in December 2002, and recorded low at 3.13 percent in December 1990.
The labour is defined as the members employed plus the people
are not employed but looking for jobs.
Unemployment Rate is the Unemployed Population which is defined as a percentage of the
present working population while present working population consists of persons whose
age is ten years and above and who fulfill the requirements for employed or unemployed
persons during the reference period i.e, one week preceding the date of interview. There has
been a decrease in the unemployment rate during the last few years. The percentage of
unemployed as compared to the present working population has declined except in 2001-02
where it increased. Normally it is observed that unemployed labour force has decreased
during the last decade with the exception of the few years. A little change was noticed in
2008-09 when unemployed labour force increased. The rate of unemployment reduces with
age; it is seen that mostly people participate in the laboure force in the age group between
20-50. This following table shows that Unemployment Rate decreases as age and
participation increase (unless the age is above 50).
In 2005-06 1.2 million of the youth (15-25 years) was unemployed, which is 0.4 million less
than the number of unemployed youth in 2001-02. in case the present percentage of
unemployment continuous for the next 20 years, the number of unemployed youth will be
nearly 6 million in 2030.
In the following table it can be seen that in the rural areas majority of the labour force is
employed, unemployment figures are to be seen as a fraction of the whole. The difference is
quite large. In urban areas, the unemployment rate is higher than in the rural area.

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Unemployed Labour Force By Areas

Years

Unemployed Labour Forec in ( In millions)

Total

Rural

urban

Unemployed Rate (%)

Total

Rural

Urban

1999-00 3.0
1.9
1.1
7.8
6.9
9.9
2001-02 3.4
2.1
1.3
8.2
7.5
9.8
2003-04 3.5
2.0
1.4
7.6
6.7
9.7
2005-06 3.1
1.8
1.2
6.2
5.3
8.0
2006-07 2.6
1.6
1.0
5.3
4.7
6.6
2007-08 2.6
1.7
0.9
5.2
4.7
8.3
2008-09 2.9
1.7
1.1
5.5
4.7
7.1
Source: Various Issues of Labour Force Survey Federal Bureau of Statistics,

(Development Report South Asia 2003)

Pakistans Status of Unemployment
The economy of Pakistan has generated a lot of advantages from the foreign expatriates,
specifically the gulf countries. This was traditionally unskilled labour engaged in the
construction boom of the post -1973 oil price hike shock. However, due to the economic
changes in the Arab countries the opportunities for unskilled labour has been decreased.
Because of decrease in jobs abroad, the economy does not allow employment
opportunities, which can be figured out from the low growth rates. With the high rate of
population growth, the figure for unemployed Pakistanis is likely to go up further.
In Pakistan the demand for skills could not match the supply for skills. Studies indicate that
Pakistan's literacy rate is one of the lowest in the world and is worse than the rest of
countries in the region.
In Pakistan no unidirectional movement of Head Count Ratio has been observed regarding
poverty status. The HCR ratio of 30.6 percent in 1998-99, increased to 3.5 percent in 2000
before declining to 23.9 percent during 2004-05 and 2005-06
(Aslam, 2009-10) In Pakistan Less than three- quarters of the school-age population goes to
primary school. Expenditure on education as a percentage of GNP has been less than 3% in
the last decade.
Unemployment in Pakistan's youth
The problem of unemployment has all along been existed in Pakistan since its inception. It
remained an important issue center in the country therefore, Pakistan's new generation
suffers from this problem a lot. Causes behind the unemployment of youth are the following;
?
There are no vacancies for youth in the market as it is already saturated.
?
Education system is not fully equipped to prepare the youth to meet the market
demand.
?
In budget the fiscal deficit has detracted the ratio of the employment.
?
There is lack of industrialization.
?
Favoritism in politics.

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Sumera et al.

?
Because of the population explosion there is unemployment in Pakistan youth.
?
In budget fiscal defict has detracted the ratio of the employment.
?
Due to the lack of there is unemployment for Pakistan youth.
?
Favoritism in politics is also one the causes of unemployment in Pakistan.
?
Copy culture has also contributed to the unemployment in Pakistan.
?
Interruption of the political parties in educational institution has also caused

unemployment in Pakistan youth.

?
Weak, defective and inefficient economic plans and management is also one of the
reasons for caused unemployment in Pakistani youth.
Effect of unemployment on youth of Pakistan
The youth are inclined to various social evils and diseases and even commit suicide.
Pressure groups are active in the country.
Ratio of juvenile delinquency is on the increase.
Street killing, kidnapping, robbing are taking over the community.
Youth indulge into undesirable activities like smuggling, sale of heroin etc.
Social disorder in the society is growing rapidly.
Due to effects of unemployment on youth of Pakistan there is a loss of national talent on
which hope of family and future of Pakistan mainly depend.
CONCLUSION
The present scenario of unemployment shows a gloomy picture of the future.
Since unemployment has multifarious reasons as discussed in this paper, therefore the
solution is not simple.
Before unemployment could be controlled, the whole of economy needs to be put on firm
footing free of corruption from top to bottom among all the members of the society.
Suggestions
As the global trade in service have grown much faster it is imperative that government
should devise policies which encourage and promote relative education in the particular
field.
For the revival of industrial sector government should announce economic revival package
to stimulate production and investment.
For the development of agriculture sector government should announce multiple packages.
The fiscal and monetary measures should attract industrialists, and foreign investment.
Government should provide technical training facilities.
To break the vicious cycle of poverty, letting free the harassed tenants, landless people from
the iron clutches of the feudal lords, the mafias and the aristocratic jagirdars.
Establishing the rules of law for fair justice.
By formulating short and long plans directed towards just and fair play of the economic
activities in the economy.

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Opportunities for investment are created through honest means and the natural and human
resources are judiciously utilized in all productive activities of the economy.
REFERENCES
Aslam, M. (2010). Poverty in Pakistan. Economic survey. Islamabad: Economic adviser
wing, finance division, Government of Pakistan. 127-128.
Habib, R. (2010). Manufacturing in Pakistan economic survey. Islamabad: Economic
adviser wing, finance division, Government of Pakistan. 39-40.
Farooq, Omer. (2010). Agriculture in Pakistan. Islamabad: economic adviser wing, finance
division, Government of Pakistan. 13-14.
Farooq, Omer. (2010). Education economic survey. Islamabad: economic adviser wing,
finance division, Government of Pakistan. 145-148.
Nizami, N. S. (2010). Population, Lahore force and employment economic survey.
Islamabad: Economic adviser wing, finance division, Government of Pakistan.
145-148.
Sherani, Sakib. (2010). Growth and investment, Economic survey. Islamabad: Economic
adviser wing, finance division, Government of Pakistan. 1-5.
Khalil, Samina. & Noman, R. S. (1999), Unemployment situation in Pakistan. Islamabad:
Applied research center.
Sumera Akram: Lecturer Preston University Peshawar
Email: sumera56@hotmail.com

Shahzad Khan: Lecturer at City University of Science & Information Technology,

Peshawar, Pakistan. MBA and MS (Major in Marketing) from Institute of
Management Sciences Peshawar. More than four years of teaching experience at
university level as a lecturer and a research scholar. 03 international publications.
e-mail: shahzadkhan.lecturer@gmail.com
Muhammad Nawab Khan: Professor Dr. Ex Dean Forest Rural Social Sciences
Agriculture University KPK.
Email: alinawabkhan@yahoo.com

Muhammad Tufail: Ph.D Research Scholar Riphah International University

Islamabad
Email: tuphail@yahoo.com
Tel: +92-91-3339851559

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