Let’s call spade a spade: The story of an ever-growing informal economy

A temporary tea stall vendor, who sells tea, biscuits, and cigarettes in the city's burgeoning Karwan Bazar area, is known as an informal entrepreneur, and so are the porters and other workers in this ever-lively bazaar in the capital. 

Thousands of readers may find it hard to reconcile this with the fact that many of these people earn much more than many graduates who have just landed in the realm of formal employment. 

However, people who have experience roaming Karwan Bazar or are engaged in businesses there are well aware of it. Many of these workers scoff at those who boast of having white-collar jobs with meagre pay cheques, especially at those who are doing clerical jobs.   

Many such informal businesses and jobs offer higher pay than entry and even mid-level white-collar jobs. Yes, indeed, let's call a spade a spade; no amount of sugarcoating will help.  

The marks of the informal economy are everywhere in the city. Battery-powered rickshaw-pullers run rampant, while mobile vendors also sell various household items, including vegetables and fruits, with great enthusiasm. Additionally, fuchka, jhal muri, and pitha sellers can also be seen on almost every street corner of the city, indicating the rise of the informal sector in the country.   

The recently released government economic census 2024 shows that household-based economic activity has increased in the country, mainly known as the informal sector. Various activities like cottage industries in homes and temporary shops on footpaths, etc., are included in this sector. The census shows that the number of entrepreneurs and establishments in this sector has increased by 78% in the last 11 years.

This situation poses a significant challenge to both society and the overall health of the economy. While there may have been quantitative economic growth, the lack of qualitative improvement is a serious concern. It signals a fundamental structural weakness in the economy, which will be more pronounced in the aftermath of Bangladesh's graduation from Least Developed Country (LDC) status, which will force us to be more competitive in the global value chain. 

Typically, as a nation develops socio-economically, the formal sector should expand, providing better labour protections and fostering a wider range of skills and capabilities. However, in this case, the formal sector's growth has stagnated. 

The fact that 85% of the population works in the informal sector underscores this problem. It is a mixed picture, and we should look at both sides. 

On the one hand, some workers who are working in the informal sector are earning a good living without recognition and a growth path, while they have had hardly any relations with the formal and banking sector. 

However, those who are working as service staff with fixed salaries hardly have any scope for growth, and they can easily be identified as the most vulnerable of all. They have limited opportunities to improve their living standards, and so the resulting economic growth is inherently unsustainable. This class overwhelmingly outnumbers others, posing a grave concern for society. The recent economic census, which revealed an increasing share of the informal sector, further amplifies these concerns. 

The Bangladesh Bureau of Statistics (BBS) says that currently, there are more than 50 lakh informal business establishments in the country. Furthermore, the number of online establishments, including e-commerce, is over 1.6 lakh. According to the census data, the number of workers entering the labour market is increasing by 20 lakh every year, with many of them ending up in the informal sector. 

The main reason for this is that good jobs are not being offered by the formal sector. Government jobs are limited, and the expected number of jobs is not being created in modern service sectors such as banking, pharmaceuticals, garments, and telecom.   

In Bangladesh, fulfilling the demand for decent jobs is a significant challenge, particularly for the growing number of educated youth. Despite higher educational attainment, many individuals struggle to find employment that matches their qualifications and aspirations. The higher the degree of a student, the fewer the possibilities for him or her to secure a job. 

The education system in Bangladesh often does not align with the skills demanded by the job market. Many graduates lack practical, job-ready skills, leaving them underqualified for available positions, coupled with the problem of less job creation in the formal sector. There is an overemphasis on theoretical knowledge rather than vocational or technical training, limiting the opportunities in sectors that require specialised skills. 

On the other hand, the Bangladeshi economy is heavily reliant on industries that require low-skilled or semi-skilled labour, such as the garment and textile industry, agriculture, and the informal sector. Jobs in construction, transportation, and small-scale trading are abundant and do not require high educational qualifications, resulting in people with lesser academic qualifications landing jobs faster than university graduates.

According to the white paper committee report, the unemployment rate is higher among literate people in both urban and rural areas, which conforms to the nature of informality in our employment. 

Interestingly, the highest unemployment rate is observed among women with tertiary education, particularly in urban areas. Data reveals that 18.88% of unemployed women hold tertiary qualifications. Moreover, among women who have attained tertiary education, a staggering 40.1% in urban areas are unemployed, compared to 28.9% of their counterparts in rural areas. This highlights a significant disparity in employment opportunities for highly educated women, especially in urban settings.

The white paper referenced a report highlighting a significant rise in unemployment among tertiary-educated youth, which surged from 9.7% in 2013 to 27.8% in 2022. This increase has been attributed to widespread difficulties in securing suitable employment. The phenomenon, termed "jobless growth," was further aggravated by government-imposed job quotas restricting opportunities for graduates. Mounting frustration culminated in student protests in July 2024, ultimately leading to the ouster of the 16-year rule of Hasina. 

Despite the recent slowdown, Bangladesh is one of the fastest-growing economies in the world. At the same time, we have a very fast-growing middle class in our society, ably aided by the growing number of universities. In case of failure to meet the demand for decent jobs on the part of the aspiring youth, it is highly likely that we will remain plunged into a long-term chaotic situation. 

On the other hand, if academically less qualified people keep earning more than their more qualified counterparts (not in all cases), it's a structural anomaly. Yet, no one should be left behind. And one should not forget that the July uprising was fomented by resentment over the lack of decent jobs in the country.      

Protik Bardhan is a senior sub-editor at the Daily Prothom Alo. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.