Beyond the Remittance Shock: Domestic Layoffs and the Coming Unemployment Crisis

Muhammad Jehangir Khan, Muhammad Ajmal Khan and Nasir Iqbal
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Muhammad Jehangir Khan: Pakistan Institute of Development Economics
Muhammad Ajmal Khan: Pakistan Institute of Development Economics
Nasir Iqbal: Pakistan Institute of Development Economics

No 2026:145, PIDE Knowledge Brief from Pakistan Institute of Development Economics

Abstract: Pakistan faces a dual labour-market risk: first, a domestic layoff risk arising from energy, freight, credit, and demand shocks across textiles, construction, transport, and retail sectors; second, a returnee and migration-placement risk, in case of weak Gulf labour markets. In this study, we focus on the domestic layoff risk while treating returnees as a linked vulnerability.In the absence of appropriate interventions, about 3 million additional workers could join Pakistan's unemployed, which can push the unemployment rate from 6.9 percent to 10.4 percent.The US-Israel military strikes on Iran (28 February 2026) and Hormuz closure have created the need for a domestic employment assessment for Pakistan. Sector-level analysis across manufacturing/textiles, construction, transport, retail, and agriculture, which employ 79.7 million workers, reveals that the layoff risks range from 670005 (early resolution) to 3 million (systemic crisis).The April 25, 2026, fuel increase (High Speed Diesel (HSD): Rs 380.19/litre; petrol: Rs 393.35/litre) directly worsens employment in the transport sector. As in Pakistan, around 73 to 84 percent of the workers are informal; therefore, official statistics may understate/underrepresent income and underemployment losses.Our suggested measures (Immediate) consist of concessional textile credit, electricity tariff reform, income support in the transport sector, BISP support extension to the returnee, reallocation of the PSDP, and urea availability on a priority basis to reduce the employment layoffs.

Pages: 9
Date: 2026
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