Pakistan has never been short on ‘announced’ ambitions. The present government has taken a clear and increasingly assertive stance to move the economy towards an export-oriented pathway, correct distortions created by decades of protection, and dismantle inefficiencies long associated with elite capture and sector-favoured policies. Aggressive tariff rationalisation, removal of anti-export bias, and an attempt to reallocate capital towards more competitive sectors signal a shift that is both necessary and overdue. But there is a deeper question that remains insufficiently examined, or one finds little evidence of: what if the constraint is not only where capital has been misallocated, but where people have been?
For years, the discourse has centred on protected sectors such as base textiles, automobiles, sugar, cement, and steel as the primary sources of inefficiency. This is not incorrect, and hence, the move towards export orientation is the need of the day. Yet focusing solely on this area risks missing more structural issues. There are segments of the economy that have remained relatively open and outward-facing, yet they, too, have struggled to scale into globally competitive export engines.
The explanation, therefore, must examine other factors that have hampered exports. A key area that must be confronted is the absence of a sustained strategy to develop human capital aligned with export transformation—a 1% increase in HDI, with high probability, can increase exports by 0.2 percentage points. Exports are not produced by incentives alone; they are produced by capabilities. However, the story of Pakistan’s labour force suggests that these capabilities are not being built at the scale or in the direction required. This becomes even more critical with advancements in digital and AI technologies.
For nearly two decades, Pakistan’s policymakers and development practitioners have spoken of its demographic dividend. A young population was expected to drive industrialisation, productivity, and export growth. But the underlying assumption—that youth will naturally move into productive sectors—has not held. And rightly so, as it had to be curated, not left on its own.
Over time, the share of employment in agriculture, historically the largest absorber of labour, has steadily declined (from over 45% to just 35.1%). Yet this decline has not been matched by a commensurate expansion in industry. Manufacturing employment (now at its lowest, at 14%) has remained largely stagnant, failing to absorb the labour exiting agriculture. Instead, the bulk of this labour has moved into services, particularly wholesale and retail trade, transport, and other low-productivity informal activities. This is not a structural transformation but a major inefficient displacement.
Young workers enter arrangements where food, shelter, and minimal income are bundled. These arrangements provide stability but not progression
More importantly, the nature of agriculture itself has changed. A large proportion of farms in Pakistan are smallholdings, often fragmented and operating at subsistence levels. As returns to small-scale farming decline and climate pressures intensify, primary earners increasingly exit these farms. But rather than transitioning into higher-productivity sectors, many move into urban informal labour markets or migrate abroad for low-skilled work. The land remains, but the labour that could have upgraded productivity is leaving.
This is where the demographic story begins to shift more towards a challenge than an opportunity. Instead of moving from low-productivity agriculture to higher-productivity industry, Pakistan’s labour force is increasingly moving from one low-productivity segment to another. Four dominant pathways now define how youth are being absorbed.
The first and most preferred pathway is migration. In just five years, over three million Pakistanis have left the country for work, most not as engineers or technicians but as drivers, labourers, and low-skilled workers. These are only the recorded numbers, and many more remain undocumented or enter through irregular routes.
These jobs generate income and sustain remittance inflows, but they do not build transferable capabilities. At the macro level, rising remittances are beginning to resemble a Dutch disease dynamic. By sustaining domestic consumption and easing external pressures in the short term, they reduce the urgency of structural transformation while subtly weakening export competitiveness through real exchange rate pressures. Income rises, but capability does not, nor does investment in productive capital.
The second pathway is domestic labour structured around subsistence. Young workers enter arrangements where food, shelter, and minimal income are bundled. These arrangements provide stability but not progression. They reduce vulnerability but do not enhance productivity. During field interactions in South Punjab, even youth trained through publicly funded programmes for export sectors expressed a preference for such employment in larger cities, highlighting the gap between training intent and labour market reality.
The third pathway is informal retail and micro-enterprise. Wholesale and retail trade have emerged as one of the fastest-growing employment categories. Within households, once one member migrates and another secures urban employment, the next often establishes a small retail outlet using pooled resources.
Small shops, kiosks, and local trading activities absorb a significant share of youth entering the labour market. During a visit to the deprived district of Sujawal in Sindh, one is struck by the presence of over 300 small shops in a very small town. Their outcome is to sustain consumption, creating a self-reinforcing local economy. But they operate at low productivity and rarely scale into formality, let alone export-linked activity.
Pakistan is now at that edge, and the risk is no longer that the country will fail to create jobs, but that it will continue to create the wrong kind of jobs
The fourth pathway is transport-based self-employment. Employment in transport and related services, such as deliveries, has expanded steadily. The acquisition of motorcycles, rickshaws, and small vehicles has become a primary means of income generation for many young workers. It offers immediate returns but does not build capabilities aligned with industrial or export sectors.
Each of these pathways is a rational choice at the household level; however, collectively they create a structural constraint. Export sectors require process discipline, scale, and skill intensity—none of which are developed in the pathways where Pakistan’s youth are currently concentrated.
Moreover, the real damage is that the skills acquired within these pathways are not easily reversible. Once a young worker spends formative years in low-skill migration, informal retail, or subsistence services, the probability of transitioning into higher-productivity, export-oriented sectors declines sharply. The economy is not just allocating labour; it is locking it into trajectories.
The lurking danger is that Pakistan may soon not have enough youth who are trained, or available for training, to lead an export-oriented pathway. This is also where Pakistan’s experience diverges from comparator countries. In the early 1980s, Pakistan’s export performance on a per capita basis was comparable to, or ahead of, countries such as India, Bangladesh, Vietnam, and Cambodia. Today, Pakistan trails all of them consistently. This divergence is not merely one of policy direction; it is one of labour transformation.
These countries did not simply incentivise exports, but ensured that labour moved into sectors where productivity, learning, and scale were possible. Vietnam integrated its workforce into manufacturing value chains, particularly electronics, supported by targeted technical training. Bangladesh absorbed a large female workforce into garments and continuously upgraded its capabilities. India developed a dual-track model, combining manufacturing with high-skill services. In each case, labour moved into sectors where learning was embedded. Pakistan’s labour force, by contrast, has moved into sectors where learning is limited.
Pakistan’s youth challenge is not marginal; it is systemic, and it is therefore explicitly recognised as a policy priority by the present government. With nearly two-thirds of the population under the age of 30, the labour market is expanding rapidly, yet absorption remains weak. Estimates suggest that over 30–35% of youth (aged 15–29) are not in education, employment, or training (NEET), translating into more than 20 million young people outside productive pathways.
This cohort represents both the largest untapped economic resource and the most immediate policy risk. Youth unemployment remains significantly higher than the national average, compounded by deep gender disparities, with young women disproportionately excluded. National employment and youth policy frameworks, therefore, place skills and employment at the centre of economic transformation, recognising that without aligning this cohort with productive, export-intensive sectors, Pakistan’s demographic dividend risks becoming a structural liability rather than a driver of growth.
On the side of implementation, however, institutions such as NAVTTC and provincial TEVTAs exist, but their scale remains small relative to the demographic challenge. Training remains largely supply-driven, while the industry itself struggles to clearly define future skill needs. The result is a classic coordination failure, where policy assumes a workforce that must be created, but the ecosystem for doing so does not exist. If Pakistan is serious about export transformation, this gap must become central. Export transformation is not achieved by correcting distortions alone; it requires aligning people with that transformation.
Because the demographic dividend is not just about numbers but about timing and realisation. The window during which a young population can be shaped into a productive workforce is narrow. Once that window passes, the same population becomes locked into a low-productivity equilibrium.
Pakistan is now at that edge, and the risk is no longer that the country will fail to create jobs, but that it will continue to create the wrong kind of jobs. In the end, the real risk is not the absence of youth; it is the persistence of pathways that convert demographic potential into consumption rather than export-oriented production, reinforcing informality and the boom-bust cycles that define Pakistan’s growth. This trend needs to be reversed if Pakistan is to withstand external shocks, such as the current geopolitical conflict.