Structural Changes in Employment Diversification in Pakistan: Assessing the Role of Sectoral Employment Elasticities in Employment Generation

Employment growth (part-time and full-time) in Sub-sectors of economic activity is not only determined by the output growth in this sector but the time lag is also involved, in addition to this the wage elasticity of employment is also critical in determining employment diversification and labor mobility between sectors, varied widely in different sectors of the economy. This paper endeavors to illustrate the role of part-time and full-time employment elasticity among sectors along with employment diversification. Furthermore, the empirical analysis is carried out on time series data for 1990 to 2019. By utilizing Seemingly Unrelated regression and by estimating wage elasticity of employment with modified two factor Cobb-Douglas function for full time and part-time employment, the results have been illustrated, by carefully considering the reliability, consistency, and accuracy of the findings, this study demonstrates an increased sectoral output tends to enhance employment in respective sectors. For the manufacturing sector and construction sector, both sectoral output and total output were found to have comparable responses that suggest employment for both sectors tends to increase in line with the output. Therefore, the conclusions of the study establish that an effective way to enhance employment is to create flexibility in the wages as an efficient approach to enhance sectoral employment.