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Lahore

Economics of Employment

No country in history has created tens of millions of jobs without industrial deepening. Pakistan will not be an exception. However, is the state prepared for the employment shock ahead?

By M. Abbas Raza | March 2026


The President of the World Bank has recently warned that Pakistan must create approximately 30 million jobs over the next decade to absorb new entrants into the economy. This figure does not represent an aspirational growth target; it is a minimum survival threshold. Failure to meet it would translate into mass youth unemployment, fiscal stress, social instability, and a further erosion of the country’s already fragile economic sovereignty.

The warning deserves far more attention than it has received. Pakistan is not confronting a conventional cyclical slowdown that can be corrected through marginal fiscal stimulus or monetary easing. It is facing a structural employment crisis driven by demographics, de-industrialization, weak productivity, and the state that has steadily lost the capacity to translate its macro policy announcements into real economic outcomes, compounded by the absence of a coherent, enforceable industrial policy.

The basic question, therefore, is not whether Pakistan needs to create 30 million jobs; it unquestionably does. The more uncomfortable question is whether Pakistan is institutionally, fiscally, and policy-wise capable of doing so.

Pakistan adds roughly 2.5 to 3 million people to its working-age population every year. Over the next decade, this translates into nearly 30 million new job seekers, the majority of them young, urbanizing, and increasingly educated, but also increasingly frustrated. Yet the economy has struggled to create even one million net formal jobs annually in recent years. Without a fundamental shift in economic structure, the employment gap will widen inexorably.

Job creation is not a slogan; governments routinely announce job numbers as political talking points, but declarations do not create jobs. They emerge from a complex interaction of investment, competitiveness, technology, skills, market access, and institutional credibility.

In Pakistan’s case, three hard truths must be confronted. First, the state no longer has fiscal space to act as an employer of last resort. With debt servicing consuming the bulk of federal revenues, the public sector cannot absorb millions of new workers without triggering macroeconomic collapse.
Second, services-led growth alone cannot absorb the labour shock. Low-productivity retail, transport, and informal services recycle poverty rather than eliminate it. High-productivity services require skills, infrastructure, and export competitiveness that Pakistan has yet to build at scale.

Third, only a revival of productive sectors, viz. industry, tradable services, and modernized agriculture, can generate employment at the required scale and quality. The collapse of industrial employment, perhaps the most glaring contradiction in Pakistan’s employment discourse, is the absence of a serious industrial policy. Manufacturing’s share in GDP has stagnated or declined, while capacity utilization remains low across key sectors such as textiles, engineering, chemicals, and light manufacturing.


The Tariff Policy and the so-called rationalized tariff structure reflected in the Federal Budget 2025–26, which ought to have operationalized and reinforced Pakistan’s overarching fiscal, trade, industrial, and agricultural policies, instead manifested as a mechanical, largely cosmetic reduction in tariff rates. Rather than serving as a strategic instrument to catalyze industrial revival, export competitiveness, and structural transformation, the tariff exercise was confined to lowering maximum and minimum tariff slabs, without articulating or advancing a coherent economic direction.

The creation of 30 million jobs is not a development aspiration but a national imperative

A genuinely rationalized tariff structure is not defined by across-the-board reductions alone; it must be anchored in economic rationale, sectoral prioritization, and developmental objectives. The 2025–26 tariff adjustments failed to internalize this logic. As a result, tariffs have been delinked from their core policy function as an integrative tool of macroeconomic management. They are neither being deployed to support fiscal consolidation, nor aligned with trade and industrial policy imperatives, nor calibrated to reinforce agricultural productivity, technological upgrading, or employment generation.

As a consequence, serious structural aberrations have emerged. The prevailing tariff regime continues to accord near-identical tariff treatment across fundamentally distinct economic categories, thereby neutralizing incentives and distorting resource allocation. In particular, the tariff structure fails to differentiate meaningfully between (a) import-substitution industries and export-oriented industries, (b) low value-added activities and high value-added manufacturing, (c) low-technology sectors and technology-intensive or innovation-driven industries, (d) labor-intensive enterprises with high employment elasticity and capital-intensive sectors with limited job creation, and (e) small and medium enterprises and large-scale industrial conglomerates.

This uniformity of treatment undermines the strategic use of tariffs as a signal mechanism, blunting their capacity to influence the direction, composition, and intensity of investment and resource flows within the economy. By failing to embed differentiation, sequencing, and conditionality into tariff design, the policy foregoes an essential lever for industrial deepening, export diversification, and employment expansion.

Compounding these deficiencies, the tariff-setting exercise also fails to anticipate and internalize Pakistan’s forthcoming and ongoing Free Trade Agreement (FTA) commitments. Tariff reductions were undertaken in isolation, without mapping future market-access obligations that will inevitably arise under bilateral and regional trade negotiations. This approach risks premature erosion of tariff space, thereby weakening Pakistan’s negotiating leverage and diminishing its ability to extract reciprocal concessions in sensitive sectors. In effect, tariff concessions that should have been preserved as bargaining instruments have been unilaterally dissipated, undermining both trade diplomacy and long-term industrial policy objectives.

In sum, the 2025–26 tariff framework reflects a rate-cutting exercise devoid of strategic coherence, rather than a policy-driven tariff architecture. Absent a deliberate alignment with national development priorities, sectoral competitiveness goals, and future trade commitments, the tariff regime remains an underutilized and, in several respects, counterproductive instrument of economic policy for growth and employment generation.

Vietnam’s tariff policy has been explicitly sequenced with its industrial and export strategies. Rather than uniform reductions, Vietnam maintains graduated tariff protection for targeted manufacturing segments. This differentiation is reinforced by time-bound protection, conditional on export performance, localization thresholds, and technology transfer. Importantly, Vietnam has preserved tariff space before entering FTAs, ensuring that tariff concessions are exchanged for concrete market access and investment commitments, thereby using tariffs as negotiating capital rather than unilaterally relinquishing them. Bangladesh’s tariff regime is explicitly aligned with its export-led, labor-intensive industrial model, particularly in textiles and apparel. It has also been cautious in sequencing FTA-related tariff reductions, ensuring that domestic industries attain scale and competitiveness before exposure to full tariff liberalization.

In contrast to these comparator economies, Pakistan’s tariff regime prioritizes uniform rate compression over strategic differentiation, fails to link tariff protection or concessions to value addition, exports, employment generation, or technology upgrading, treats import substitution and export-oriented production as tariff equivalents, thereby neutralizing industrial incentives, and undertakes tariff reductions without preserving negotiating leverage for future FTAs.

The comparative experience demonstrates that tariffs, when embedded within a coherent industrial and trade strategy, can decisively influence the structure, sophistication, and resilience of the economy. Pakistan’s challenge is not tariff reduction per se, but the absence of a purpose-driven tariff architecture that channels investment toward high-value, export-capable, and employment-intensive sectors.

Pakistan produces graduates faster than it creates suitable employment opportunities, while simultaneously suffering from skill shortages in technical and vocational fields

No country in history has created tens of millions of jobs without industrial deepening. Pakistan will not be an exception. Small and medium enterprises (SMEs) employ a large share of Pakistan’s workforce, yet they remain trapped in informality. The reasons are structural, punitive taxation upon documentation, limited access to credit, weak contract enforcement, and regulatory systems that treat compliance as an extraction opportunity rather than a facilitation mechanism.

Pakistan produces graduates faster than it creates suitable employment opportunities, while simultaneously suffering from skill shortages in technical and vocational fields. This mismatch fuels both unemployment and emigration.

Skills policy cannot be divorced from industrial and export strategy. Training electricians, machinists, or technicians makes little sense if the economy does not generate firms that require them. Conversely, investors will not come if skills are unavailable.

Agriculture still absorbs a large portion of Pakistan’s labour force, but much of this employment is disguised unemployment. Low productivity, fragmented landholdings, and weak value chains limit income growth and trap workers in subsistence. The solution is not to push more people into agriculture, but to raise productivity, promote agro-processing for high-value-added products, and enable labour mobility into industry and services. This transition has been mishandled for decades and now poses acute social risks.

If Pakistan fails to create these 30 million jobs, the consequences will be severe and cumulative. Youth unemployment will translate into social unrest and political volatility. The tax base will shrink further, worsening fiscal deficits. Skilled workers will continue to leave, hollowing out the country’s productive capacity. Informality will deepen, undermining governance and compliance. At that point, the problem will no longer be economic alone; it will be existential.

Meeting the employment challenge requires abandoning incrementalism. Pakistan needs a coherent national employment and productivity strategy, anchored in five pillars (i) export-led industrial revival, (ii) SME formalization, (iii) skills aligned with sectoral demand (iv) agricultural transformation, linking farmers to value chains and non-farm employment, and (v) institutional credibility, where policies are consistent, contracts are enforced, and investment is protected.

The World Bank’s warning should be treated as a diagnostic, not a slur. It exposes a simple reality that Pakistan’s demographic window is closing, and without decisive action, it will become a demographic burden. The question, therefore, is no longer whether Pakistan can afford to undertake deep structural reform. It is whether Pakistan can afford not to.

The creation of 30 million jobs is not a development aspiration but a national imperative. Whether the state rises to this challenge will define Pakistan’s economic and political trajectory for a generation.

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