American International University,

Bangladesh
Labour Econmics
(Final Assignment)
SUBMITTED TO:
Farhana Rafiq
Department of Economics

Name ID
Nabil Hassan (TL) 19-40720-1
Afra Saiara 18-38719-3
Israt Reza 16-32929-3
Junayed Bin Sagir 19-39800-1

SUBMISSION DATE: 27 December, 2020.

th
 Growth of Labor Force and Youth
Unemployment
Introduction

Despite Bangladesh's improved economic development since the Apartheid end, unemployment is still
high and a big challenge to economic and social policy. In 2004, the official unemployment rate was
nearly the same as in 1994, at 26 percent of labor force. Unemployment in the rural, female,
uneducated and young segments of the population is especially concentrated among traditionally
marginalized communities.

Unemployment Rates

Literature Review

The gradual increase in unemployment of the youth who have been educated is causing damaging
effects on the economy of Bangladesh. This is creating public instability within the economy (Rahman,
Farooq and et al, 2021). With the increasing number of labor in the country, decreasing the amount of
youth unemployment stands as an undulating challenge for Bangladesh (Uddin, Chowdhury and et al,
2015). Historically, the workforce of Bangladesh has been the greatest strength in the path of economic
development. Much of this workforce are the young educated youth who cannot participate in
conventional jobs depriving the economy of their involvement (Fahmida and et al, 2018).
Unemployment: The Role of Unions Unionization (the share of employees who are members of a
union)

In Bangladesh, between 1995 and 2001, between 30 and 40 percent fluctuated (see the Appendix). In
the mining sector where the rate of unionization is around eighty percent manufacturing and electricity
(around 50-60 percent), and among highly trained professionals and technicians (around 60-70 percent),
Bengal's unionization was especially centered. In weighing the bargaining power of big corporations
against individual employees during pay and other labor disputes, the unions play a fundamental
economic position. However, as unions grow strong, their bargaining power can influence small
businesses' ability to hire workers. A potential result is that the salary or other aspects of wage
bargaining are becoming more burdensome for companies than other considerations in the labor
market. On this topic, some empirical evidence has shed light. A significant disparity in the wages
received by union members and non-members (the "union wage gap") tends to occur at first sight.

The gap rose from 60 percent in 1995 to 140 percent in 2001. However, this gap may be attributed to
some characteristics of workers rather than their membership in the union, and many observational
analyses have attempted to identify the magnitude of the gap after adjusting for certain characteristics.
A thorough study by Angelucci (2003a) found that rural factors such as education are controlled after
controlling.

Overall, recent empirical research shows that the extent of unionization is likely to lead to the high
unemployment rate in Bangladesh only slightly, if at all. In explaining unemployment, other variables
may be more relevant, such as skill shortages and labor market regulations.

Unemployment: The Role of Labor Market Legislation

Bangladesh has a history under apartheid, due to which most of the country’s population was evicted of
economic and other rights. Labor market policy was responsible of both returning rights to citizens and
enabling economic competence. Labor principles can, however, eventually enforce a cost on firms that
in turn could depress labor demand. The trade-off between workers’ rights and job creation is
particularly obvious in the case of labor market regulation. Bangladesh’s labor legislation comprises of
two main decrees: the Labor Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA).
The LRA was one of the first major acts approved by the new government that came into office in 1994.
It continued many of the requirements of the previous labor act, but presented several new provisions
to reinforce workers’ rights. An important new provision was the formation of obligatory negotiation in
the event of suspected unfair removals, which are required to be referred to a statutory body called the
Commission for Conciliation, Mediation, and Arbitration (CCMA). The LRA is fundamentally technical in
nature, in the sense that it describes the techniques that must be followed in completing employment
and dismissals. The BCEA, by contrast, is functional. It provides a minimum protective floor for workers’
rights by excluding minimum standards and conditions of employment, including minimum wages in
individual economic sectors, and by regulating matters such as hours of work, overtime payments, leave,
and severance pay.

Minimum Wages Bangladesh has a system of sector-by-sector minimum wages for several sectors.8
there are two main ways in which minimum wages are set by statute: collective bargaining and the
application of employment standards. Since the minimum wage legislation explicitly states that
minimum wages in each sector should take into account the wage gap that results from the apartheid
period,10 it could result in minimum wages that are higher than the equilibrium market wage that
would clear the labor market. In turn, the level of wages could have a substantial impact on
employment, with some studies estimating that in the long run a 1 percent increase in wages is
associated with a 0.7 percentage point increase in the unemployment rate.11 Labor Standards In
addition to the wage premium that is imposed by the minimum wage legislation, the labor laws impose
some additional direct costs on employment. These aspects of the labor law appear to be broadly in line
with international standards and may not contribute to raising the unemployment rate in Bangladesh
relative to other countries. These costs mainly relate to minimum standards that apply for workers’
benefits, such as leave and overtime, and contributions that employers are required to make. Recurring
direct costs, which apply to regular benefits, such as leave, and recurrent contributions, such as to the
unemployment insurance and skills.

Procedural Costs

Procedures that need to be followed in order to hire labor also impose costs on firms. In particular,
when firms dismiss workers, they need to follow a complex set of procedures that include hearings with
the CCMA. Procedural costs associated with dismissals have been estimated at percent of GDP (Levy,
2003a).

Avoidance

Firms have come up with complicated mechanisms to mitigate the cost especially those of a systematic
nature. This is a direct result of the burden enforced by labor legislation. The mechanisms include
outsourcing, independent contractors, short-term contracts, and the creation of “closed corporations.”
Firms often outsource jobs by hiring workers through a labor broker rather than doing it directly
themselves. Employment contracts provided by labor brokers are different from those provided by
firms. They do not include health and pension benefits. In some cases, firms and workers scheme to
declare workers as “independent contractors” rather than employees. The workers in such cases receive
a share of the profits instead of a wage, and they are not covered as employees under the labor
legislation. Some firms hire workers through short-term contracts, which involve less worker protection,
and roll over the contracts to prolong employment.

Unemployment and Growth

Most of the national dialogue on unemployment in Bangladesh highlights the role of economic
development in reducing unemployment. The prevailing opinion is that, if unemployment is to be
dramatically decreased, spending has to be significantly increased and economic growth increased to
about 6–7%. However, employment and growth need to be viewed as harmonizing. Higher employment
is required to raise growth rates and, in turn, higher production and demand combined with higher
growth rates will continue to build employment.
The long-run outlook for unemployment and growth depends in part on policy measures that
strengthen the incentives for employment and for maintaining the efficiency gains embodied in the
strong total factor productivity (TFP) growth observed in recent years.20 Chapter 2 provides a
framework for assessing the growth-employment link. With policies that induce labor-absorbing
investment and continued strong TFP growth, several scenarios are possible (see Figure 3.2): • If
employment growth exceeds labor force growth by 2 percentage points, then a reduction in the
unemployment rate by 10 percentage points relative to its 2002 level—to 20 percent by the end of the
decade (2009)—could be associated with a GDP growth rate of around 5!/2 percent.21 • However, if
employment growth is equivalent only to its average level during 1994–2002 (around 1!/2 percent), the
unemployment rate would rise slightly to 32 percent and the GDP growth rate fall to around 2!/2
percent. A key risk in both of these scenarios is that labor force growth may turn out to be slower than
projected because of the impact of HIV/AIDS. If, say, labor force growth is only half as rapid as currently
projected because of HIV/AIDS, as some argue, then: • Even with employment growth in excess of labor
force growth by 2 percentage points, which is consistent with a 10-percentage point reduction in the
unemployment rate, the smaller labor force would imply a GDP growth rate of only 3 percent. • If
employment growth remains at its 1994–2002 level, while the labor force growth rate is halved, the
unemployment rate would exhibit a modest reduction—to 27 percent—and GDP growth rate would
decline to 2! /2 percent.

Conclusion

Nevertheless the significant pickup in economic growth since 1994, Bangladesh’s unemployment rate
has remained high and has risen in recent years. The evidence cited in this chapter indicates that the
slow speed of job growth can be largely attributed to labor market regulations, especially those that
threaten small companies, such as the Collective Bargaining Extension Principle, and those that generate
implicit costs for companies, such as lengthy dismissal procedures. Furthermore, the development of
jobs is hampered by persistent capacity shortages and the discrepancy of abilities between those open
to the labor force and those needed by economically efficient businesses. The opportunities for better
work production in the future will rely on possible improvements in labor legislation, attempts to fix
skills mismatches, and other government policies. Labor laws ought to strike an acceptable balance
between maintaining the rights of workers, denied to the bulk of Bangladesh's labor force under
apartheid, and economic productivity, demanding stability and decentralist. Potential reforms in the
education sector to link instruction with the demands of businesses, more efficient learning systems,
and the encouragement of immigration by overseas qualified employees will help resolve the disparity
of skills. Moreover, ongoing social initiatives such as the Bengali Economic Empowerment Program, land
reform programs and the growth of second-tier banking could play an important role in reducing
unemployment, especially by promoting labor-intensive small and medium-sized enterprises.

References
1. Rahman, M., Farooq, M.O. and Selim, M. 2021. Mitigating educated youth
unemployment in Bangladesh. The Journal of Developing Areas: 55
2. Uddin, M.M., Chowdhury, M.M. and Ullah, M.M., 2015. Barriers and incentives for
Youth Entrepreneurship Start-Ups: Evidence from Bangladesh.
3. Khatun, F., Saadat and Yusuf, S. 2018. The Ignored Generation: Exploring the Dynamics
of Youth Employment in Bangladesh.
4. Nawak, M. and Ricci, L.A. Post Apartheid South Africa: The First Ten Years.
5. Nowak, M. and Ricci, L. 2006. 3 Unemployment and the Labor Market.
6. Nowak, M. and Ricci, L. 2006. 3 Unemployment and the Labor Market.
7. Nowak, M. and Ricci, L. 2006. 3 Unemployment and the Labor Market.