The economic growth in Bangladesh has accelerated steadily in the past three decades, but employment growth made a stronger contribution to growth in the 1990s than in recent decades
Over time, an economy grows from two sources: the number of workers in the formal market, and the productivity of each worker.
The economic growth in Bangladesh has accelerated steadily in the past three decades, but employment growth made a stronger contribution to growth in the 1990s than in recent decades.
Employment growth, in turn, depends on two factors: demography, which underpins the number of potential workers; and the labour market, which determines where jobs are created, and for whom.
Bangladesh has been experiencing a demographic transition over recent decades, increasing the number of potential workers, as shown in Chart 1.
Until the 1980s, over two-fifths of Bangladeshis were too young to work formally.
The share of children in total population has been steadily declining in more recent decades, approaching a quarter by 2019.
The share of working age (16-64 years old) people, on the other hand, increased from over half to two-thirds in that time.
Dependency ratio —the number of dependent (both children and the elderly) per working age person —shows how the demographic structure can help or hinder people’s ability to join the workforce. Obviously, a couple looking after one dependent (dependency ratio of half) has more ability to participate in income generating activities than a couple looking after two dependents (dependency ratio of one).
Chart 2 shows that dependency ratio across South and Southeast Asia. Bangladesh has a relatively favourable demographic structure —not only is there room to further decline in the ratio, some of our neighbours are seeing an uptick in the ratio, reflecting ageing of their societies.
Of course, just because there are more people potentially available to work does not mean they are actually working. For Bangladesh to reap the so-called demographic dividend, the economy must create enough income generating jobs. Historically, for a small, densely populated country such as Bangladesh, the process of economic development has meant people leaving rural farms for urban factories.
Chart 3 shows that a similar process has been happening Bangladesh in recent decades. Whereas two-thirds of workers tilled the farm in the early 1990s, less than two-fifths worked in agriculture by 2019. Meanwhile, industry’s share of total employment doubled to over a fifth in that time.
This reflects the readymade garments industry, the story of which is well known, as is its employment of millions of women, ushering in social as well as economic change. In the early 1990s, for example, only one in every five workers in Bangladesh was female. By the late 2010s, one in every three was.
This progress notwithstanding, there is room for improvement. While Bangladesh fares better than our South Asian neighbours, women make up higher proportion of workforce in Southeast Asia (Chart 4).
Similarly, employment to population ratio in Bangladesh is lower than in Southeast Asia (Chart 5). For example, over recent decades, while less than three-fifths of Bangladeshis were in formal employment, nearly three-quarters of Vietnamese were.
Bangladesh needs to create millions of more jobs to avoid a dystopia of non-working urban poverty.
The author is an applied macroeconomist