Impact of Demographic Transition on Employment in Pakistan: Implications for Job Creation

Abstract

This study calculates the required number of jobs to be created in Pakistan, given the demographic factors. To calculate the required number of jobs to be created by 2030 changes in employment are projected to 2030. The behavioral impact of fertility on female labor force participation is also studied. Employment equation is used to calculate and project changes in employment. The elements of employment equation are unemployment rate, labor force participation rate by age and gender, and population projections by World Population Prospects (2019) are used. Determinants of unemployment rate and labor force participation rate by age and gender are first estimated using Ordinary Least Square (OLS) method. Each determinant is forecasted using ARIMA, moving average, and trend forecasting methods. Using the predicted values of determinants, unemployment rate and labor force participation rate are forecasted using ARIMAX and regression method. To choose the best forecasting technique, forecast evaluation is conducted through RMSE and MAE. The results revealed that unemployment rate is forecasted to be 5.9 in 2030. Population share has considerable impact on labor force participation of different age groups. Fertility rate has significant impact on female labor force participation rate. It is calculated in the study that, to accommodate population increase and changes in the labor force participation rates by age-group and gender, 23.72 million jobs are required to be created in Pakistan by 2030. Furthermore, changing unemployment rates and labor force participation rates does not have substantive impact on employment change. It is the population change which is the primary driver behind changing the employment in the country.