Theme 1: Youth employment - supply and demand side constraints and related policy options
Motivation and situation analysis
Youth in the developing countries often face unique challenges in participating in labour markets. The main entry barriers to better paying occupations are their lack of access to productive assets including credit, education, and vocational training (Heyer, 2006; Quisumbing and Pandolfelli, 2010). As a result, they tend to engage in low-skilled wage labour and labour-intensive self- employment and informal sector activities that are characterised by insecurity, seasonality and low returns (Banerjee and Duflo 2007; Haggblade et al., 2007; Banerjee and Duflo 2008; Bezu and Barrett, 2010).
Over the past decade, youth unemployment rates in the developing economies of Africa, Asia, Latin America did not show significant improvements despite generally positive economic growth. These regions have experienced important growth in labour supply, mainly in the youth population, which has put more pressure on the labour markets. As a result, the global youth unemployment rate has been rising since 2011. Recent estimates indicate that about 12.6 percent are unemployed and this is projected to increase to 12.8 percent by 2018. In contrast, the global adult unemployment rate, while also rising slightly, is much lower at 4.6 percent in 2013 (ILO, 2013). Whereas youth unemployment rates in the LAC region were 2.3 times those of adults in 2000, this ratio increased to 2.8 by 2012. In South Asia and North Africa, this ratios were even higher in 2012 – 4 and 3.3, respectively – although they had not risen significantly since 2000. To reverse this situation, job creation needs to grow at pace with the growth of the youth labour force. Unfortunately, this has not been the case. According to the ILO’s latest labour market outlook, young people’s employment conditions have worsened in nearly every region in 2013 (ILO, 2014).
Many low- and middle-income countries in the developing regions are experiencing an increasing incidence of the ‘educated unemployed’ phenomenon. This is a consequence of rising levels of participation in higher education, where concerns with quality of training and the adequacy of curricula to labour market requirements are common. Job creation rates for positions require this type of education cannot absorb the new entrants into the labour market (AfDB, 2011). Sub- Saharan Africa represents a particular challenge since the youth bulge was not followed by a sharp decline in fertility, which implies that the region will not benefit from a demographic
dividend. Thus, employment quality (informality), employment inadequacy (higher NEET population)15 and welfare are expected to deteriorate even further.
For youth, the challenge is primarily for youth aged 15-24, but sometimes also ages 25-29, because there is growing evidence that the transition to adulthood, including school-to-work transition, is now more protracted into these higher ages. The youth, who are usually employed with non-standard and temporary contracts, are exposed to occupational health hazards (Belin et al., 2011). On the other hand, youth migrant workers had been noted to be growing where many of them are employed in high risk and /or irregular jobs. While migration may address the lack of employment opportunities among the youth, it also brings them, particularly young women, higher risks of abuse, discrimination and exploitation. For instance, young overseas workers from the Philippines reported to have encountered mistreatment, wage arrears, abuse, long working hours, and lack of days off (ILO, n.d.).
On the other hand, the growing concern on the segment of population not in employment, education or training (NEET) is associated with issues relating to youth unemployment, early school leaving and labour market discouragement and hence now included as part of the youth- specific target for the post 2015-SDGs to promote inclusive and sustainable economic growth (ILO, 2015). The high incidence of youth NEET population in developing countries is largely attributed to low school attendance and low levels of income (Freije, 2013).
While there are existing programmes to alleviate youth unemployment, they often have limited scope and period of implementation and are focused on labour entrants instead of quality of employment (Ombagi, n.d.). Youth employment programmes are not typically linked with social protection provision, which in resource constrained LFC contexts tends to be limited in coverage and highly focused on provision for vulnerable households with children, elderly or disabled members. Where youth employment programmes are in place, such as the NYEP in Ghana, these are not integrated with social protection provision, which tends to be financed, designed and managed from separate sources (McCord. 2012)
Although several supply and demand-side interventions have been proposed to enhance employment for youth and women in Africa (AfDB, 2011) and other developing regions (Karlan and Valdivia, 2011; Giné and Mansuri, 2014), there is limited context-specific evidence to inform policy choices to support job creation and productive employment for them. Several studies focusing on education and training programmes that prepare youth for the labour market have also been proposed to help them transition into the world of work. Although these programmes are fairly widespread, most of the evaluations and assessments that have been carried out so far have been done for programmes implemented in upper- and middle income countries. The applicability of these lessons and policy recommendations to poor countries is therefore still questionable and more research is needed to test and rigorously evaluate context-specific interventions in these countries. The key research questions in this thematic area will explore
15 NEET refers to the youth population Neither in Employment, Education or Training.
policy options aiming at narrowing labour supply and demand gaps, reducing labour market mismatch, reducing vulnerability and promoting productive employment.
To reduce youth unemployment (and materialise the demographic dividend), new entrants need to be absorbed by the labour market.16 Traditionally, this has been addressed from the supply side by the means of labour market training programmes intended to improve skills of the youth labour force. School-to-work transition programmes were widely implemented in LAC in the form of vocational trainings with positive but modest outcomes (see Betcherman et al., 2007). Narrowing the growing gap will require better information systems on available employment opportunities, as well as the creation of new jobs to absorb the growing number of unemployed youth.
Labour market information and support systems for youth transitioning from school to work are scarce but crucial to reduce unemployment since they help young job seekers by i) improving the quantity and quality of information on available jobs and ii) better signalling their productivity and skills to potential employers.
In an integrated view that considers both labour supply and demand side approaches, some relevant research issues for developing and low-income economies include:
· Country-specific interventions that address the supply side constraints in terms of creating jobs and employment opportunities for unemployed youth (public employment and public works projects, wage subsidies, active labour market programmes, etc.).
· Employment information hubs and mentorship for youth that enhance the availability of labour market information
· Identification of public and private interventions that generate the greatest impact in developing labour market networks among the youth
· Implementation of employment information systems in the presence of unreliable information due to informal labour market including unregistered workers, jobs and firms.
· Estimation of the economy-wide and regional impacts of expanded youth employment on inclusive growth and poverty reduction
16 The demographic contribution to accelerating economic growth is often referred to as the demographic dividend. This provides a time-limited window of opportunity for growth if it coincides with strategic investments to enhance human capital and create an enabling environment for businesses to demand and deploy the skills of the youth population more efficiently and equitably.
1.2 Reducing labour market mismatch
In general, the concept of labour market mismatch refers to situations where new labour market entrants or the unemployed do not have the set of skills needed by employers who are hiring. The curricula taught in schools and universities have historical origins and great inertia; changing what is taught is a slow and laborious process. In many low-income countries, curricula – including which fields of study are considered important – still derive from former colonial powers. The resulting ‘educated unemployed’ phenomenon raises concerns regarding the effectiveness of such supply driven interventions17 (AfDB, 2011).
In many poor countries, vocational education received little attention as there is a widespread lack of support and acceptance of this type of training, not only by employers but also by the youth population. Manual skills are often discredited, as are many practical skills which may enhance the employability of youth. Even when youth obtain vocational training, the skills taught often belong to a previous generation of craftsmanship rather than current demands. Such programmes are focused on job seekers’ lack of skills (supply side) and do not consider their corresponding job providers’ demand, which may be limited18. Thus, even where there is good formal education, there may be a mismatch between the goals of educators and the needs of employers. Reducing labour market mismatch requires public investment and engagement of private sector in education to provide skilled labour force to match demand and supply in labour markets. However, aside from the curricular defects, the overall quality of secondary and tertiary education in public and private schools in low-income countries is often poor. As a result the diplomas that the students attain do not have much economic value in the labour market.
The key research issues to reduce the mismatch to enhance youth employment in the poor economies would therefore include appropriate country-specific approaches to:
· Estimate skill mismatches in different sectors and programmes
· Identify the policies required to address this mismatch through reorienting curricular to meet skills needed in the local economy
· Understand the kind of educational policies and interventions that are needed to build demand-relevant skills and prepare young people for the labour market
· Analyse formal and informal training opportunities and job skills development options that support youth to develop the skills needed in labour markers
· Explore apprenticeship and internship opportunities that involve the private sector to help the out-of-school youth develop the experience and skills needed for local employment.
17 Demand-driven interventions are often found to be more effective. For further details see Betcherman, et al. (2007)
18 This has been partly addressed by programs such as ‘Jóvenes’ program. This is a demand-driven intervention where potential employers offer working experience (internship) through a bidding process. Even though it has been successful in many countries, it was also expensive due to the long duration of the program (eight years on average).
1.3 Reducing vulnerability and promoting productive youth employment
Unemployment rates are not a good measure of employment as many youth are either in vulnerable and marginal employment or often cannot afford the cost of searching for decent work opportunities. In most rural, less-developed economies, youth must undertake whatever livelihood activities they can find or create, even if these have extremely low levels of productivity and/or do not nearly fill a work day. If they engage in any kind of economic activity for one hour or more during the reference week, they are counted as employed according to international definitions, but the quality and/or quantity of this employment is often inadequate.
In situations where self-employment or unpaid family work are widespread, individuals could be working very long hours with meagre returns. The ILO proposes the notion of “vulnerable employment” to attempt to capture this category of workers. Finally, the notion of “irregular employment” tries to broaden the vulnerable employment measure to include wage and salaried workers without work contracts or with limited-duration contracts (less than one year for developing countries and undefined for high-income economies).One measure that casts a wider net, and abstracts away from whether a young person is ready and available for work or actively searching for it, is the “Neither in Employment nor in Education or Training” (NEET) measure. This measure is particularly relevant for youth because it captures those who are not investing in their future either by acquiring human capital through education/training or by gaining experience on the job.
The key policy research questions to reduce vulnerability and to promote productive youth employment in low- and middle income developing countries would include:
· What kind of employment opportunities will help the youth transition from the informal and vulnerable employment to productive employment that will enhance their incomes and offer decent working conditions?
· What kind of support systems and interventions are needed to build skills and prepare young people working in the informal sectors to successfully enter formal labour markets?
· How can the expansion of educational opportunities for youth in the low and middle income developing countries be accompanied by improvements in quality that employers in productive sectors will require?