By Abdul Wajid Khan

Pakistan faces the risk of a double labour-market shock if the prolonged Middle East conflict prevents hundreds of thousands of new workers from migrating while forcing existing Pakistani workers to return home, according to economists.

They highlighted the need to diversify overseas employment destinations and expand job creation at home.

A study by the Pakistan Institute of Development Economics (PIDE) estimates that the Middle East receives around 0.7-0.8 million Pakistani workers annually and accounts for about 54% of Pakistan’s total remittances. Around six million Pakistanis are currently working in the region.

The study estimates that if the conflict persists, around half a million Pakistani workers would be unable to migrate this year, while more than half a million existing workers would potentially return. Together, the two developments could add substantial pressure to Pakistan’s domestic labour supply.

The potential shock is particularly significant because overseas migration has historically provided an important outlet for Pakistan’s growing workforce. Between 2010 and 2024, around eight million Pakistani workers were placed in the Middle East, equivalent to nearly one-third of the 25.9 million new entrants to the labour market during the period.

Talking to Wealth Pakistan, PIDE Professor of Economics Dr Nasir Iqbal said the potential return of workers, combined with a reduction in new migration, would put short-term pressure on Pakistan’s labour market.

“The current wave of deportations and blocked migration should be read as a normal adjustment given the regional conflict, not a structural collapse of the Gulf corridor,” he said.

“Absorbing half a million returning workers alongside another half a million unable to migrate will strain the domestic labour market in the short run and informal employment will likely rise and wages in low-skill segments will face downward pressure, since the formal economy cannot create jobs at that pace or speed,” Iqbal added.

He said some increase in underemployment could be unavoidable without active labour-market interventions, although the disruption did not necessarily have to develop into a prolonged unemployment crisis.

Associate Professor at the University of Azad Jammu and Kashmir Dr Attiqur Rehman said Pakistani workers could face greater employment difficulties if the Gulf crisis persisted and new migration slowed significantly.

However, he cautioned against assuming that the Gulf labour market was already undergoing a major contraction.

“It has been six or seven months since this conflict began, and the expectation was that it might have a significant impact on employment there, particularly for Pakistani workers. But that has not happened,” Rehman said.

He attributed the relatively limited employment impact partly to policy responses by Gulf governments, saying measures taken during periods of pressure had helped keep economic activity functioning.

According to Rehman, some Pakistanis had faced travel restrictions and visa-related obstacles, but the overall impact on employment had so far remained limited.

The current situation, therefore, does not necessarily represent a collapse of the Gulf employment corridor. Economists said it nevertheless exposed the risks associated with Pakistan’s heavy dependence on a limited number of overseas labour markets.

Rehman said Pakistan should identify alternative destinations where demographic changes and ageing populations were creating demand for foreign workers.

“We should not depend on a single destination; rather, we should have multiple options where our young people can go if needed,” he said.

Iqbal said Pakistan should also prepare for employment opportunities that could emerge in Gulf Cooperation Council economies once the conflict subsides.

“The more important question is forward-looking: GCC economies will need substantial labour for post-conflict reconstruction and continued diversification once the conflict eases,” he said.

Pakistan should therefore align its labour-export strategy with the skills Gulf economies are expected to require rather than simply seeking to restore previous migration volumes, he added.

Iqbal called for fast-tracked skills matching and certification programmes for returning workers, reintegration and social-protection measures, and deeper coordination with Gulf labour ministries to position Pakistani workers for future reconstruction-related employment.

Rehman stressed that diversification of overseas employment destinations would address only part of the challenge.

“No matter how many people go abroad, Pakistan will not develop in a sustainable way unless we create opportunities here at home,” he said.

He called for greater access to finance for young Pakistanis seeking to establish businesses, small industries and technology-based enterprises, including freelancing operations capable of earning income from international markets.

Rehman warned that Pakistan currently had limited capacity to accommodate a sudden influx of returning workers.

“At present, our situation is that if even 100,000 people return from the Gulf, we do not have the capacity to absorb them,” he said.

The economic implications would extend beyond employment. The PIDE study estimates that a prolonged conflict could reduce Pakistan’s remittance inflows by around $3 billion to $4 billion annually, potentially adding pressure to the external account.

For Pakistan, economists say, the challenge is therefore not simply protecting existing Gulf employment. It is to diversify overseas labour markets, prepare workers for future demand in Gulf economies and expand domestic employment opportunities so that disruptions to migration do not translate into a broader labour-market shock.

Credit: INP-WealthPk