Structural Shift in Job Creation: Evidence from Bangladesh

Overview & Synopsis

This paper examines the relationship between economic growth and employment in Bangladesh, with a comparative perspective involving six other Asian countries. It first tests the validity of Okun’s law for Bangladesh and the selected countries using three distinct autoregressive distributed lag model specifications: a dynamic difference model, a gap model based on the Hodrick-Prescott filter, and a gap model based on the Baxter-King filter. The analysis then estimates the employment elasticity of economic growth for Bangladesh across three periods—2003–10, 2010–17, and 2017–24—while also exploring sectoral variations in employment elasticity within these subperiods. The results reveal that the evidence supporting Okun’s law in Bangladesh is weaker than in the other countries. Furthermore, the sectoral analysis shows substantial shifts in the employment elasticity of economic growth over time: the agriculture sector experienced an increase in the employment elasticity of economic growth from 0.29 in 2003–10 to 0.98 in 2016–24, while the industry sector’s elasticity declined from 0.84 to -0.04 over the same period. The service sector also saw a reduction. A more granular examination of subcategories within the industry and service sectors highlights that accommodation and food services and transportation and storage have demonstrated the strongest employment elasticity, whereas the employment elasticity for the manufacturing sector turned negative, performing the worst among the sectors analyzed. These findings carry significant policy implications, underscoring the importance of prioritizing employment-enhancing growth strategies, identifying and promoting sectors with high job creation potential, and focusing on improving job quality rather than pursuing growth-driven employment policies.