During his recent visit to Pakistan, World Bank President Ajay Banga spoke candidly about the massive unemployment challenge facing the country. He emphasized that with one of the world’s largest youth populations entering the labour market, Pakistan must create between 2.5 and 3 million jobs annually — or nearly 30 million over the next decade. Failing to do so, he warned, could push the economy toward collapse, fuel social unrest and instability, and drive increasing numbers of young Pakistanis to seek livelihoods abroad.
According to Banga, high unemployment is not merely an important development goal but a serious “generational challenge” that will test the government’s ability to absorb, skill, and productively deploy a youth cohort entering the workforce at an unprecedented pace. This represents a structural test for policymakers, one that will shape economic outcomes, social cohesion, and the credibility of the country’s governing institutions in the decades ahead. The World Bank president also noted that employment creation will remain a “binding constraint on growth” over the long term, as a lack of jobs will ultimately limit how quickly the economy can expand.
The stark reality is that current growth patterns reflect an economy struggling to move forward. Pakistan’s unemployment crisis is worsening steadily, severely restricting growth potential and eroding economic optimism. There are unmistakable signs that what should be a demographic dividend risks turning into a long-term liability. With nearly 80 percent of the population below the age of 40 and almost two-thirds under 30, demographic pressure is translating into a steadily rising unemployment rate, which has reportedly reached a 21-year high of 7.1 percent.
The average annual GDP growth of just 1.7 percent between 2022 and 2025, combined with high inflation, has eroded real incomes and weakened labour demand across the economy. Key sectors such as agriculture, manufacturing, construction, and wholesale and retail trade — which traditionally absorb the bulk of the workforce and employ more than three-quarters of workers — have experienced decline. Manufacturing, construction, and trade have all contracted, shrinking the economy’s ability to generate jobs for millions of young people entering the labour market each year.
According to the latest Labour Force Survey, the unemployment rate has risen to 7.1 percent in FY25. The Population and Housing Census 2023 places the broader unemployment figure at around 22 percent, reflecting the reality that many young people remain jobless for extended periods and increasingly seek opportunities abroad. With the labour force growing by roughly 3 percent annually, sustained GDP growth of at least 5 percent or higher is necessary to prevent further deterioration in labour market conditions. The widening gap between a growing labour supply and shrinking labour demand has become perhaps the most pressing policy challenge facing the country. It is therefore no surprise that recent years have witnessed a surge in outward migration, with skilled professionals leaving in record numbers. This trend demonstrates that the employment problem is not limited to low-skilled workers but is increasingly affecting highly trained individuals as well.
Pakistan is thus experiencing a toxic combination of weak employment growth and declining real incomes. Persistent inflation in recent years has disrupted household budgets and pushed increasing numbers of people below the poverty line. Worse still, whatever limited growth has occurred has been unevenly distributed, benefiting only select segments of society. When growth is both slow and unequal, the inevitable result is rising unemployment, widening inequality, and spreading economic distress.
What, then, is the way forward? As the World Bank president indicated, Pakistan must develop a new job-creation strategy based on sustained investment in human capital, modern physical infrastructure, and regulatory reforms that make it easier to start, operate, and expand businesses. At the same time, the government should facilitate broader access to financing and insurance, particularly for small and medium enterprises and the agricultural sector, both of which generate a large share of employment through labour-intensive activity. At present, however, these sectors remain largely deprived of the capital required to operate at their full potential, limiting productivity and growth.
Building human capital is perhaps the most urgent need of the hour. Any serious employment generation strategy must focus on equipping young people with skills aligned with market demands. To promote vocational and technical education, the country must expand its network of polytechnic institutes and skills development centres in order to prepare a workforce capable of meeting the evolving needs of a modern economy. This approach would not only enable young people to access meaningful employment but also enhance productivity and competitiveness across labour-intensive sectors such as construction, manufacturing, and agriculture.
Needless to say, well-funded vocational and technical education programmes could help close the critical skills gap and open new economic opportunities for millions of young people, while also boosting productivity across Pakistan’s industrial landscape. Equally important is the need to provide SMEs and agricultural enterprises with easier and more reliable access to financing and insurance so they can grow and hire more workers. Finally, the government must address the bureaucratic obstacles that continue to hinder business activity. Cumbersome legal requirements, complex labour and social security regulations, and a complicated taxation system — including multiple withholding rates at various stages of business transactions — discourage investment and entrepreneurship. Without meaningful improvements in the ease of doing business, Pakistan will struggle to maximize productivity or generate the large-scale employment opportunities required for its rising generations of youth.