Employment multiplier impact of sectors key to job creation

LAHORE: Pakistan lacks data on employment multiplier impact of each sector, but can get guidance from the US data to create more employment opportunities in the country.

The research on US economy may not be fully relevant to Pakistan, as automation in the US is very high. Still, it can give our planners an idea on how to proceed. This government is rightly trying to boost manufacturing sector where the job creation is high. The textile sector is not included in this report because textile production in the US is mostly outsourced, but our planners have an idea about the potential of apparel, making job creation and should facilitate it more in textiles.

According to a research report authored by Josh Bivens of EPI Center, titled “Update employment multipliers for US economy”, each industry has backward linkages to economic sectors that provide the materials needed for the industry’s output, and each industry has forward linkages to the economic sectors where the industry’s workers spend their income.

On this basis, he found that for each 100 direct jobs in agriculture 93.6 suppliers jobs are created along with 134.8 induced jobs; thus, a total of 228.5 additional jobs are created.

In the same way, total jobs/100 employees created in mining is 390 jobs, utilities 957 jobs, durable manufacturing 744 jobs, construction 226 jobs, nondurable manufacturing 515 jobs, wholesale trade 235 jobs, retail trade 122 jobs, transportation and warehousing 276 jobs, information 573 jobs, finance and insurance 364 jobs, real estate and renting leasing 879 jobs, professional scientific and technical services 418 jobs, management of companies 399 jobs, administrative and support services and waste management 134 jobs, educational services 193 jobs, healthcare and social assistance 205 jobs, art, entertainment and recreation 378 jobs, and accommodation and food services 161 jobs.

We treat many sectors of the economy casually without even knowing the multiplier impact of this indifference on jobs. Take for instance automobile sector. The EPI’s research shows that the loss of 100 auto manufacturing jobs results in the indirect loss of 744 additional jobs. Or in other words, if we impeded growth of this sector that stops addition of one job in the industry, we impeded 7.44 additional jobs that could not be created.

Import of used cars impedes thousands of jobs in the auto industry. In the case of automobile production, there are backward linkages to industries that produce tyres, glass for windshields, and steel for automobile frames (among many others).

Forward linkages occur when automobile workers (and suppliers’ employees) spend their income in restaurants and retail stores and at the doctor (to name just a few).

Industries that are heavy users of materials are vital to their suppliers. If an automobile factory were to close, its suppliers in the glass, steel, and rubber industries would have a big hole to fill in demand for their own output. Industries that pay higher wages are vital to their forward-linked industries. If a steel factory closed, surrounding restaurants and retail malls would also have a big gap to fill in demand for their output.

The planners would have to understand the repercussion of closure of a factory or a mega retail outlet employing same number of employees. If for instance, a manufacturing facility producing durable goods and employing 1,000 workers is closed, then in addition to the direct job loss of 1,000, the jobs lost downstream and upstream, according to the research findings, would be 7,440.

This is because 100 durable manufacturing jobs create 744 additional employments upstream and downstream. However if a mega retail store employing 1,000 workers is closed, the direct job loss would be the same as in case of manufacturing facility, but the job losses upstream and downstream would be only 1,220 because in retail business as 100 jobs retail result in creation of only 122 additional jobs.