Counting jobs

Saturday, 21 October 2017 00:00 - - {{hitsCtrl.values.hits}}

A key pledge of the Government, particularly the United National Party (UNP), is to create one million jobs by 2020. Employment is one of the most important measurements of economic growth and perhaps the most tangible one, making it imperative to have independent numbers on which to base policy decisions.

The Government’s latest policy document titled Vision 2025, which was jointly released by President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe, claims that from January 2015 up to date 430,000 new jobs have been created within the economy.

However, this claim is not being borne out by the data that has been published by the Central Bank in its Annual Reports based on the data compiled by the Department of Census and Statistics. According to the Central Bank, as at the end of 2014, the number of people employed in the country had amounted to 8.424 million. As at the end of 2016, this number has declined to 7.948 million recording a decline of employment by 476,000.

This is a case in point of why a credible, independent and transparent jobs report is urgently needed. The job market is the heartbeat of the economy. It’s both an indicator of economic health—since a strong economy prompts companies to hire more workers—and an engine of growth, since higher employment means more dollars available to spend on goods and services. Without job growth, overall economic growth is likely to be limited no matter what else is happening in other areas of the economy.

The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy. It’s comprehensive ideally should be available early in the month, much like the US version. Many other economic indicators could depend on the information presented in the report. The report could reveal important information about the labor market, income levels, and industrial production.

The US job market report, for example, is eagerly awaited by the whole world, as it drives stock market and influences policy decisions. It can also give important hints on the holding power of an economy and whether policies are successfully implemented.

In the US the Employment Situation Summary Report is used to help determine the tightness of the labor market. This tightness gives an indication of inflationary pressures on wages. A tight job market is basically when the number of qualified workers is less than the number of jobs available in the market, so the labor market has more jobs than workers, leading to upward (or inflationary) pressure on the wage rate.

Alternatively, in the case of slack in the labor market, the reverse is true—the labor market has more workers chasing fewer jobs available, leading to a squeeze on the wage rate. Both are important in understanding the nature and transitionary power of labour and how it is performing on the value chain.

As Sri Lanka moves towards attracting foreign investment and increasing exports it needs to create a more dynamic labour market, particularly in high-end service sectors, which attract the best employment and help in reducing brain drain. To make fact based decisions and dispel political myths a job report would be an ideal starting point.