Human capital destruction during unemployment decreases participation. An evidence from the labor force survey of Pakistan.

There are many causes and factors that leads to human capital destruction such as lack of education, poor health, unemployment, underemployment, discrimination, lack of investment in training and development, lack of availability of relevant jobs to the graduates forces them to do a misfit job (i.e., a mechanical engineer is doing a quality assurance job) and economic instability. However here we are going to focus on unemployment and underemployment.

Unemployment and underemployment can have serious negative effects on human capital development in Pakistan. When individuals are not employed, they are not able to gain skills, knowledge, and experience that are necessary for their personal and professional growth. This can lead to a decrease in their overall human capital, which can have long-term consequences for the individual, their families, and the country’s economy as a whole.

In addition to the direct impact on individuals’ human capital development, unemployment and underemployment can also lead to a decrease in labor force participation. This means that individuals who are not employed may become discouraged and stop actively seeking work. As a result, they are no longer counted as part of the labor force, which can lead to a decrease in the overall labor force participation rate.

In the bar chart we can clearly see the negative relation between labor force participation rate and unemployment rate. As unemployment rate decreased from 6.90% in 2018–19 to 6.30% in 2020–21 consequently the labor force participation rate increased from 44.80% in 2018–19 to 44.90% in 2020–21 which clearly shows unemployment is the primary cause of human capital destruction leading to decrease in the participation rate.

This decrease in labor force participation can have negative consequences for the economy as a whole. It can lead to a decrease in productivity, as there are fewer workers available to produce goods and services. It can also lead to a decrease in economic growth, as fewer workers means that there are fewer people contributing to the economy.

However, it is important to note that the relationship between the two indicators is not always straightforward. For example, a decrease in the labor force participation rate may be due to individuals becoming discouraged and giving up on their job search, rather than a decrease in the number of job openings. In this case, the unemployment rate may not necessarily decrease, even though there are fewer individuals in the labor force.

Overall, it is important to address the issue of unemployment in Pakistan in order to promote human capital development and increase labor force participation. This can be done through a variety of measures, including job training programs, education and skills development programs, and targeted job creation initiatives. By addressing the root causes of unemployment, we can help individuals and the country as a whole reach their full potential.

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