Unemployment: Causes and Remedial Measures | Daily News

Unemployment: Causes and Remedial Measures

Part 2

It is useful to examine the robustness of mismatch hypothesis for understanding the current trend in unemployment in Sri Lanka since some researchers and commentators are of the opinion that it is the most influential hypothesis in explaining the issue of high level of unemployment. Accordingly, the sign of mismatch can be still found in certain specific areas. For example, more than 40% of unemployed desires employment in professional, technical and clerical occupations although in the current employment profile these three categories comprise only around a 15% of all the employed in that broad area. When expectation for obtaining clerical jobs are particularly concerned, more than a 20% of the total unemployed persons expects clerical occupations whereas in the current employment profile only about less than 5% is engaged in clerical jobs.

Expectations to become skilled agricultural and fishery workers and craft and related workers are very low compared to the number of employees already engaged in these fields. As such, these facts suggest that the mismatch hypothesis is still relevant in certain employment areas. Further, as a whole, the analysis of the profile of expectation reveals that expectations for higher level jobs rise with increasing education. The persons with lower levels of education are prepared to be employed in elementary occupations. Also, long-term unemployment is most conspicuous among those who have obtained higher educational qualifications, and as such, there is a positive relationship between the duration of unemployment and the increased level of education of the job aspirants.

However, contrary to views of the advocates of the mismatch hypothesis, now evidence appears to believe that rigour of mismatch hypothesis has faded away. It is found that unemployment in all educational levels shows a considerable decline with nearly the same rates over the years. Also, unemployment in all ages has considerably reduced. When university education system is considered, it can be noticed that now the university education system has been geared to give more skills to graduates. For example, Dassanyake and Karunaratna (1996) proposed a number of steps to be introduced to enhance the quality of university education for Commerce and Management students. Some of the suggestions were; arranging staff development programmes for lecturers, adopting continuous evaluation methods with the introduction of course unit systems, providing opportunities for students to evaluate their lecturers, giving practical training and making collaborations with the industry.

Anecdotal evidence shows that within a period less than a decade from making these recommendations they have been successfully put into practice by almost all the faculties in the university system.

Employment data

Finally, as a whole, job creation by all the major sectors can be analyzed to determine whether or not sufficient employment generation over time has been made by each sector. Sri Lanka’s status of employment data show how employment absorption has been taken place over the years.

Accordingly, if latest data available in the Annual Report of the Central Bank for the year 2018 are taken into account it shows that the public sector’s employment share is 14.5 %, private sector’s share is 43.4%, Employers’ share is 2.8%, self-employed share is 32.3% and unpaid family workers’ share is 7.2%. Accordingly, formal economy’s total labour absorption is 60.7% while that of informal economy’s 39.3%. If these total percentages were compared with those in 1991, respective shares were 62% and 38% which shows a trend of reducing the formal sector economy’s job generation while increasing that of informal economy over time.

These data show that under neo-liberalized economic policies considering that the private sector is the engine of growth from 1977 economic reforms has failed to achieve a high level of economic growth and thereby generating sufficient amount of employment, particularly for the educated youths who are not prepared to shift to the informal economy for finding employment. Thus, the employment creation by the formal private sector has not sufficient to catch up job drop in the public sector after 1990, and absorb new job seekers considerably to the formal economy. On the other hand, even under export oriented industrial (EOI) policies the country’s export structure has been still depending mainly on producing and exporting low value added products (mainly garments) abnormally for a long period, indicating that the private sector led economy has largely failed in graduation to generate higher skill jobs.

The study by Ratnayake and Nayananada (1998) confirms this view saying that Sri Lanka’s manufacturing industries have a very low level of backward linkages to the economy. Nanayakkara (2005) emphasizes that the Sri Lankan businesses have failed to continue to increase both efficiency and effectiveness. Embuldeniya (2004) points out that the country’s manufacturing industry has been trapped by low level value-added production system mainly because of poor technological innovations.

Remedial measures

Comparative status of employment data reported by the Annual Central Bank Reports over time show not only how each major sector of the economy has absorbed labour, but also analysis of those data suggests the way forward for mitigating this issue. Accordingly, in 2018 compared with 1991 data, the public sector’s employment share has dropped by 8.4% from 22.9%, the private sector’s share has increased only by 3.9% from 39.5%, the employer’s share has increased only by 0.6% from 2.2%, self-employed share has increased by 6.9% from 25.4% and unpaid family support workers’ share has decreased by 2.8% from 10.0% respectively. As such, reduction of employment in the public sector has not been captured by the inadequate increase in the formal private sector’s employment generation.

The self-employed share has increased considerably indicating that there has been a substantial increase in the informal sector showing that the formal economy has not expanded for providing employment opportunities for absorbing the educated youths who is looking for employment in the formal economy. Also, this shows a situation of labour market deterioration although the Central Bank wrongly thinks that it is a favourable trend. More importantly, all over the years, the employers’ share of the status of employment remains between 2 to 3 percent of the workforce of the country, indicating that percentage of employers in the economy has been remaining at a very low level which shows that there is a lack of successful entrepreneurs in the economy, and as a result, job generation too has not increased over time. Therefore, what is mainly needed is increasing entrepreneurs in the economy, which can be possible by motivating persons to shift from other sectors of employment to become successful employers. For example, the formal private sector employees can be motivated to commence their own businesses as much as possible. Also, self-employed or on their own account employees can be supported to become more successful entrepreneurs, and finally, entrepreneurial education at the high school and the university levels can be promoted so that at least some of the educated youths can be motivated to come forward as entrepreneurs rather than totally depending on existing institutes for finding jobs.

However, more comprehensive employment plan paying attention to Human Resource Management (HRM) aspects should be developed and implemented for solving all major types of unemployment such as frictional, cyclical and structural unemployment.

The nature of frictional unemployment can be minimized by improving the flow of job information in the labour market, such as with an establishing computerized and some other job banks, improving public employment service, and organising job fairs where prospective job candidates can talk with representatives of different companies. Also, the relevant public policy can be formulated to reduce the level of frictional unemployment by eliminating undesirable causes of labour turnover. Further, public policy can be mainly used to reduce the extent of cyclical unemployment.

The most direct approach is to adapt fiscal and monitory policies that ensure stable and healthy rates of economic growth. Once a recession does begin, timely intervention in the form of tax cuts or an easier monetary policy can limit the severity of the economic downturn and resulting unemployment. Also, as advocated by John Maynard Keynes carrying out alternative public work projects such as new irrigation work, highway constructions and urban renewals can be arranged to reduce the effect of recession. Finally, even the public policy can be employed to reduce the structural unemployment. One solution is government provision or subsidization of training programmes which give young people marketable skills. This can be promoted by giving tax incentives to companies that offer training to workers. Education system at each level including giving training can be reformed in order to inculcate the various job skills motivating school dropouts at O/L and A/L to follow technical causes.

Another possibility is to make the government the employer of last resort by directing some educated youths to team up for finding new job opportunities to create new and innovative businesses. Also, unemployed graduates for years can be recruited for public sector jobs under graduate employment schemes by following more organised and effective training programmes than what are done currently. Also, foreign employment can be promoted, and lastly, movement of unemployed workers can be encouraged out of depressed areas by providing reallocation allowances and other incentives.

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(The writer is a visiting lecturer and research consultant)