Economic growth doesn't ensure youth employment

In 2014, 14 percent of the globally unemployed were young people (aged between 15 and 24). However, the situation was not uniform across different regions of the world. For example, while the South Asian average youth unemployment rate was 10.3 percent, the rates were much higher in the Middle East and North Africa (30.4 percent) and in the European Union (25 percent). The corresponding figures for Sub-Saharan Africa, East Asia and Pacific, Latin America and Caribbean, and North America were 14.1 percent, 11.6 percent, 14 percent and 13.9 percent respectively. According to the ILO estimates, together, the unemployed and the working poor account for 40 percent of the global youth labour force.

In South Asia, countries differ in youth unemployment rate quite widely. In 2014, while Nepal had the least rate (4 percent), the highest rate was for Maldives (26.9 percent). Also, while Bangladesh, Bhutan, India and Pakistan had rates between 8-10 percent, the rates were quite high for Afghanistan (20.8 percent) and Sri Lanka (19.1 percent). Yet, during 2010 and 2014, except Nepal, all South Asian countries experienced a rise in the youth unemployment rate.

High level of youth unemployment leads to economic, social and political costs, such as foregone output, increased poverty and social exclusion, and social and political unrests. The reasons behind youth unemployment are manifold and complex. Among them, the quality and relevance of education and training, inflexible labour market and regulations, lack of supporting government policies, and lack of inclusiveness in the economic growth process can be considered the main ones.

How does economic growth affect youth unemployment? The answer is not very straightforward. As an example, we have plotted the trends in real GDP growth rates and youth unemployment rates in Bangladesh for the period between 1991 and 2014. The figure suggests an inconclusive association between real GDP growth rate and youth unemployment rate in Bangladesh (in fact, there is a very low overall positive correlation coefficient!). During 1991 and 1994, both these rates moved along. During the years between 1995 and 1999, with a moderate upward trend in real GDP growth rates, the youth unemployment rates fluctuated quite a lot. During 2000 and 2002, youth unemployment rate declined along with a downward trend in the GDP growth rates. However, during 2003 and 2007 both these rates had upward trends. Also, during 2009 and 2014, with an overall rising trend in the GDP growth rates, youth unemployment rates saw a rising trend. All these suggest that economic growth in Bangladesh is yet to be conducive for youth employment.  

At the global level, the association between economic growth and youth unemployment is rather alarming! Our econometric analysis using a cross-country panel data for 171 countries with a time span for 24 years (1991-2014) suggest that 10 percent rise in the per capita income (PPP at constant 2011 US dollars) at the global level is associated with a rise in the youth unemployment rate by 1.2 percent, and this association is statistically significant. Also, during 1991 and 2014, globally, a point increase above average economic growth rate was associated with 0.02 percent increase in the youth unemployment rate!

The aforementioned analysis points to the fact that, economic growth is not a guarantee in tackling youth unemployment. There is a need for flanking policies, which may differ for different regions of the world depending on the level of developments. However, few policy issues are common and are also very relevant for countries like Bangladesh and other countries in South Asia. The policies for job creation should be at the top of the agenda. This will require actions from governments in the form of widening the scopes and coverage of relevant training programmes, supporting the sectors with high potentials for youth job creation by removing the binding constraints these sectors face, and supportive fiscal and monetary policies for the promotion of youth entrepreneurship. There should also be targeted programmes for the specific disadvantaged segments of youth population (i.e. female youth or youth from lagging regions of the country) through skill-development and appropriate labour-market policies, which include customised training and work experience programmes, job search assistance and other employment services. Furthermore, there is a need for building public-private partnerships, in collaboration with international organisations, for investments to improve the working conditions aiming at the promotion of decent jobs for youth.

The writer is Professor, Department of Economics, University of Dhaka, Bangladesh, and Executive Director, South Asian Network on Economic Modeling (SANEM).

Email: selim.raihan@econdu.ac.bd