This document discusses poverty reduction, employment, and wages in rural Pakistan. It notes that rural real wages declined in Pakistan from the 1980s despite outward migration, indicating a lack of minimum wage protection for rural workers. Agricultural labor lacks benefits like social security and pensions afforded to other sectors. The document recommends establishing minimum wages and workers' protections for the agricultural sector. It also analyzes trends in the formal and informal non-farm rural job sectors, and concludes that promoting labor-intensive agriculture and industrialization can lead to broad-based employment growth, income distribution, and poverty reduction.

1. Lecture 5 Employment,wages& the rural poor.
Poverty reduction is linked strongly to employment. The exploitation of labor in situations of poor
governance and thin, inadequate labor markets is a major cause of increasing poverty. The factthat
rural real wages actually declined in Pakistan despite significant external and internal out-
migration during the 1980s bears testimony to the fact that there is no minimum wage protection
in the rural sector. In addition, the legislative frameworkfor the protection of workers does not
apply, as these laws do not apply to the agriculture sector. Agricultural labor is thus deprived of
benefits such as social security and old-age pension benefits. Minimum wage laws need to be set
for the agriculture sector and all legislation, including workers' protection and non-wage benefits,
made applicable to the agriculture sector.
However,the proportion of wage workersis quite high in the non- farm sector. Unpaid family
helpers constitute a very small proportion of the labor force in this sector. Most rural activities in
this category,however,fall under self-employment and small businesses.The non-farm sector
comprises a formal and informal sector. The informal sectoris labor-intensive, and requires little
or no formal training or physical capital. Due to these easy entry requirements, a majority of
uneducated and unskilled workers are absorbed by this sector. Working conditions are extremely
dismal, and although the sector absorbs a large majority of the labor force,poor working conditions
combined with the absence of any employment benefits do not improve workers' living standards
to any considerable degree. The formal sector comprises registered firms where employment is
provided either on a permanent or contractual basis. Labor laws apply to such organizations and
their workersenjoy all the benefits that apply accordingly.Using constructionworkas a proxy for
rural non-farm labor indicates that nominal wages in the sectorhave increased considerably, while
real wages declined during the 2009 s. Falling real wages among construction workers in the non-
farm sector coupled with a high dependency ratio has worsened living conditions for laborers. On
the other hand, farm wages, too, have declined forpermanent labor, while casual labor wages have
increased only marginally.
Enterprises owned by rural households are small and employ primarily family members. It has not
begun the process of generating wage employment, whichdepends largely on establishment of
rural industries. The multivariate analysis shows that age, education, sex and household size are
the major determinants of being employed in the rural non-farm sector.
It can be concluded that a dynamic labour-intensive agriculture combining with a modernising
non-agriculture sector can lead to a broad spread of employment and income, with resulting rapid
growth, egalitarian distribution and elimination of rural poverty. Policy interventionto promote
non-farm employment is also justified to stop, to some extent, migration to cities. The design of
rural development policies, in addition to providing the support necessary to raise agricultural
productivity, should also be addressed to needs of local nonfarm activities. In particular, the
growth and concentration of such activities in rural towns and villages raises substantially the
demands forinfrastructure services—electricity,water supplies, roads, schooling, health—for

2. vocationaltraining in nonfarm activities, for banking and credit, and for the development of local
urban institutions.
The MDTF aims to reduce the rate of unemployment from around 7 per cent in 2004-05 to 4 per
cent by the end of the Plan period 2009-10. It is based on a projected average growth rate of 7.4 per
cent over the fiveyear period and an implied employment elasticity of around 0.4. This wouldlead
to employment growth of around 3 per cent which, being higher than the projected growth of labor,
would result in a significant fall in the unemployment rate.
According to the MTDF, “The employment strategy forthe Plan period is a unique combination of
flexible employment relationship (indicated by a high level of labor and job turnover) and economic
and social security of employees (illustrated by an unemployment benefit system) along with labor
market policy of activation (whichupgrades the skills of the unemployed and thus supports the
ongoing transformation of the economy).Furthermore, this strategy promotes equity in income
distribution through setting of high enough wages to bring a household out of the poverty trap. It
aims at the elimination of the “workingpoor” along with generation of employment opportunities.”
The employment flexibility policies principally aim at increasing the demand for labor through
public works programs (Tameer-e-Pakistan and Khushal Pakistan Program), encouraging overseas
employment and growth of employment generating sectors namely agriculture, small scale
manufacturing, information technology and construction.The employment activation policies
encompass technical and vocationaltraining to the unemployed, increasing employability of the
educated to meet demands of the private and social sectors, micro-financing facility forthe self-
employed, setting up of an SME bank, micro-credit facilities through Khushali Bank, micro-credit
scheme of Zarai Taraqiati Bank forself-employment, the Pakistan Poverty AlleviationFund to
promote micro finance with around $ 350 million available in resources over the Plan period and
the establishment of a labor market information system. The employment safety net policies
include the setting up of a minimum wage to ensure elimination of the working poor, the Provincial
Employees Social Security Schemes, Employees Old Age Benefit Institution (EOBI),Public Sector
Benevolence Funds and Group Insurance, Workers Welfare Fund, Worker's Children Education
Ordinance, Zakat Fund and Bait-ul-Maal fund (Individual Financial Assistance Scheme, Food
Subsidy Scheme or Atta Subsidy Scheme)
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