“Young people ought not to be idle,” quipped Margaret Thatcher, “It is very bad for them.” That was twenty years ago. With over a million youth currently out of work in Britain today – 21% of the population – her words remain unfortunately prophetic. And it’s not just industrial countries that are in a funk. The “arc of unemployment” does not discriminate: it cuts across southern Europe through the Middle East to South Asia. Almost half of the world’s young people live along this arc, and it is a demographic dividend that is quickly becoming a demographic liability.
Consider South Asia: a region home to the largest proportion of unemployed and inactive youth in the developing world, a whopping 31%. Many attribute this to social norms, as many South Asian women do not work for cultural reasons. But with a growing middle class, gender norms are rapidly evolving.
With 1 to 1.2 million South Asian’s joining the labor force every month, the region’s labor markets could use a dose of evolution as well. The formal sector fails to absorb millions of young graduates every year. Employment laws are often too restrictive, compliance too complicated, and enforcement too weak. Indian employers must navigate around 200 laws on work and pay, some of which are tighter than laws in OECD countries. Large businesses often need prior government approval for dismissals, and severance pay is exorbitant in countries like Sri Lanka, Bangladesh, Nepal, and Pakistan.
Ironically, this web of regulation fails to protect the majority of workers. Formal employment regulation covers less than 10% of the labor force in most countries, and less than a third even in Sri Lanka, which has the most formalized labor market. In South Asia, most enterprises are created and operate in the unorganized sector, forcing young people into an economic space that isn’t taxed, regulated or monitored. This sector is also associated with high poverty rates, poor job security, and gender discrimination.
Most troubling of all, the economic and social costs of prolonged unemployment can linger for decades. Individuals who begin their careers without work are more likely to earn lower wages over the course of their lifetimes. The loss in human capital from lost training and experience accumulation can stunt the productivity of an entire generation.
Don’t Pull the Ladder up Behind You
There is no silver bullet when it comes to addressing youth unemployment. But a sound and growing economy – one where is growth translates into job creation – is a prerequisite. Most jobs are created by small businesses. Addressing the bottlenecks to private enterprise – tackling corruption, reducing power shortages, streamlining registration procedures, strengthening property rights and improving access to finance – can stimulate entrepreneurship, and in turn aggregate job growth.
The formal sector is only one side of the story, however.
Informality is woven into the fabric of South Asia, and remains a barrier to upward mobility. Leaders should consider policies that also incorporate the softer aspects of job growth, and foster a ‘culture’ of formality. Given the agrarian character of the region, bringing rural youth into higher productivity industry and services will be crucial. Vocational training should be tailored closeler to the informal sector. Tapping into family businesses and community networks, or incentivizing participation through compensate schemes can bring more youth into the fold. Nurturing entrepreneurship early on – particularly among women – can also help to shift social norms.
Labor market policies are also in need of reform. In South Asia, there is a need to move from protecting “jobs” to protecting “workers”. Public works in countries like Bangladesh and India have been around for decades, but have lacked an explicit youth component. Employment programs can directly produce jobs, in addition to spreading good labor practices and growing markets. Social protection for first-time job seekers, including unemployment assistance and employment guarantee schemes are also needed to protect the most vulnerable.
While the scale of the unemployment challenge is daunting, it is not insurmountable. Creative solutions are needed, ones that incorporate employment services, training, support for self-employment and entrepreneurship, and access to credit. Jobs are perhaps the most certain path out of poverty – an opportunity policy makers should not lose sight of.