Cracking the unemployment and underemployment challenges – What have we learnt and what progress has been made to date?

The week preceding the International Labour or Workers’ Day Celebrations on May 1st and a few days after it saw a flurry of forums, workshops and, on a more practical note, job fairs. These activities ranged from the Second Regional Employment Forum, presided over by the Right Honourable Prime Minister on April 25th 2016 to a big job fair the following day, the Labour Day Celebration itself on May 1 at Amahoro Stadium as well as the Business Development Fund Stakeholders Forum and the launch of Rwanda’s first Youth Agribusiness Forum, that were both organized on May 3. Many of these important events were organized in collaboration with the One UN Rwanda Team through the ILO,UNDP, UNIDO, FAO and ITC. The underlying objectives of all the workshops were implicitly and explicitly linked to the search for ways and means of accelerating productive and decent job creation, especially through entrepreneurship and small and medium-scale enterprises development. As it is widely known, Labour Day celebrations allow governments, the international community, employers and workers to reflect on the prevailing state of affairs in respect of job creation, labour absorption rates, remunerations, broader working conditions such as safety, pensions and long-term security.This year, the above series of events allowed the concerned Government of Rwanda Officials and other key stakeholders, notably the private sector but also a wide range of NGOs, workers and youth organizations to deepen the reflections on the twin problems of unemployment and underemployment. There is broad consensus by now that the challenges of ensuring adequate productive and decent job creation for the rapidly increasing youthful labour force in most parts of the globe have emerged as one of the most complex development issues of our times. Many of the previous World Economic Forum meetings devoted considerable space and time to deliberating on these issues. First things first: What Exactly do Unemployment and Underemployment Mean? Before proceeding, it is useful to recall the key elements of the concepts of unemployment and underemployment and how they have evolved over time as they could provide pointers to the possible solutions to the problems at hand. In the May 1st, 2016 edition of The New Times, DonahMbabazi,in an article on the subject matter under review here,made a good attempt at simplifying for us the definitions of unemployment and underemployment, and I would recommend it as a useful reading. In this article I will try to enrich the traditional definitions of unemployment and the underemployment by adding other issues such as the different definitions of unemployment that will help with shedding more light on the different aspects of this phenomenon and possible solutions. For this, we draw extensively onMirrian-Webster’s analysis. Traditional economic theory defines unemployment as a situation that “occurs when a person who is actively searching for employment is unable to find work”. Given that the human resources of any society are among its most precious assets, the state of unemployment is now generally agreed to be roughly indicative of the health of any economy. The extent of unemployment is measured by the employment rate, which is the number of unemployed persons divided by the total labour force. Over time, different variations of the unemployment rate have emerged depending on what definition of unemployed and/or what notion of the composition of the labour force is used. For instance, in recent times, dampers have been put on the significantly improving US unemployment rate because “the definition of unemployment excludes actual unemployed workers who have become discouraged by the tough labour market and are no longer looking for work”( Mirrian-Webster). One difference between the advanced welfare states and developing countries like Rwanda is that the “discouraged” unemployed workers in the former could afford to stop the active search for jobs at given times because of the existence of unemployment insurance schemes or other welfare benefits like food stamps/subsidies that guarantee them minimum standards of living while being unemployed. But the phenomenon of unemployment is not singular; it has different dimensions, with each requiring different solutions. In the literature, four main types are normally discussed: Structural Unemployment Structural unemployment occurs because of an absence of demand for a certain type of worker. This typically happens when there are mismatches between the skills employers want and the skills workers have. The skills/available jobs mismatch is quite common in developing countries like Rwanda. Major advances in technology, as well as existence of much lower labour costs overseas and consequent relocation of production facilities to the latter, has led to this type of unemployment in many advanced industrialized countries. When workers lose jobs because their skills do not match jobs being offered or are obsolete or still because their jobs are transferred to other countries, they are structurally unemployed. This type of unemployment is characterised as structural because the structure of the economy has changed, not because of the recurring cyclical changes.Addressing it may require relatively difficult measures, that are also likely to yield the desired results only in the medium to long-term. Frictional Unemployment Frictional unemployment occurs because of the normal turnover in the labor market and the time it takes for workers to find new jobs. Throughout the course of the year in the labor market, some workers change jobs. When they do, it takes time to match up potential employees with new employers. Even if there are enough workers to satisfy every job opening, it takes time for workers to learn about these new job opportunities, and go through the established recruitment processes. Unemployed university graduates could belong to this category as during the time they are looking for jobs after graduation they are frictionally unemployed. This phenomenon is currently being observed in Rwanda, with a university graduate unemployment rate close to 14%. Cyclical Unemployment Cyclical Unemploy mentarises from the ups and downs in economies, normally referred to as business cycles or booms and bursts.For instance, when the economy enters a recession, many of the jobs lost are considered cyclical unemployment. Thus, cyclical unemployment increases during recessions or bursts and decreases during recoveries or booms. Seasonal Unemployment Seasonal unemployment occurs when people are unemployed at certain times of the year, because they work in industries or enterprises where their services are only needed during specified periods of the year. Examples of industries where demand, production and employment are seasonal include tourism and leisure, farming and construction. The above types of unemployment are more evident in advanced and emerging economies than developing countries, but could also be discerned in varying degrees in the latter, as noted above. The more predominant form of unemployment problem in developing countries is the phenomenon of underemployment. In the literature, underemployment characterises situations where a person holds or does a job that does not correspond to his or her qualifications or where the person is not fully occupied. The notion of underemployment has three major dimensions: over qualification, whereby people do jobs that do not correspond to their skills or academic qualifications; involuntary part-time, whereby workers who would otherwise have wanted to be employed full-time could only find part-time work; and over-staffing or hidden unemployment.Underemployment is predominant in developing countries, notably in rural areas. Donah analyzed quite well this phenomenon in the Rwanda case, where the formal unemployment rate is estimated at 3-4%, but which masks the high rate of underemployment. Why Are the Complexities of Unemployment So Persistent? In an article I published in The New Times sometime back in early 2015, I posed the question: “why the global community, with all the enormous resources and intellectual power at its disposal, has apparently failed to crack the complexities of unemployment and underemployment confronting nations across the world for such a long time?” I postulated that this situation puts on the spot the commonly accepted approaches and strategies for addressing unemployment issues Over the past decade and a half, the phenomena of unemployment and underemployment have increasingly preoccupied policy makers across the world, without any exception. At the height of the financial crisis in 2008, the unemployment rates in the US deteriorated sharply to 8% from some of their lowest ratesof 4%, at the peak of Bill Clinton’s Presidency in 2000, while the average jobless rate exceeded 10% in the EU as well as emerging Latin American and Asian countries. Compare all this to what for a long time has been considered by mainstream economists as the “normal” or “acceptable” unemployment rates of 4-5%. In fact, in countries like Italy, Spain and Greece jobless rates among the youth reached 30% and have remained there for a prolonged period of time. There is consensus that such high and persistent levels of unemployment have profound economic, social and political implications. In fact, they constitute significant threats to social and political stability in many countries. Consequently, there has been unprecedented focus over the past few years by the Governments and policy makers in a broad range of countries as well as international development and financial organizations on the issue of unemployment.Enough time has by now elapsed to allow us to not only comprehend why the unemployment challenges have persisted for such a prolonged period of time but also to draw valuable lessons about what could work. In trying to understand all this, I put forward three basic hypothesis. The first is that for there to be success in tackling the unemployment and underemployment problems, particularly in developing and even emerging countries, there has to be a major shift from passive neo-classical (laissez-faire) frameworks to more aggressive and proactive strategies, policies and programmes more relevant to these specific contexts, where market failures are widespread. In my view the pertinence of this hypothesis is underscored by the fact that neo-classical economic theory argues that the labour markets are efficient at addressing employment problems if left on their own, and that commonly wielded interventions, notably minimum wage laws and unionization, or directing enterprises to certain areas, disturb significantly the labour supply and demand, thereby contributing to unemployment problems in the process. A variant of this neoclassical economic proposition is provided by the simple production functions.This is represented by the equation: Y= f (L+K+R), which postulates that economic growth (Y) is realized from combination of the growth of a country’s labour force (L) and its effective utilization combined with accumulation of its physical capital (K) and technological progress, embodying innovation (R). Assuming a one to one relationship between growth and the rate of increase of factors of production, labour, capital and technological progress, the simple production function implies that unemployment problems would be automatically tackled through economic growth, as it will always absorb increases in the labour force, which in turn would stimulate it. There is consensus that this ideal picture projected by classical production functions is in sharp contrast to today’s jobless growth realities! For instance, a 7% economic growth rate of an economy like Rwanda’s, whose labour force growth rate is about 3%, should be able to offer jobs to all the new entrants and even require imported labour in order for the high rates of growth to be maintained. But this does not happen because of all the factors we have mentioned: labour reducing technological progress, offered jobs/available skills mismatches, structural, seasonal and cyclical factors etc, thus requiring all types of active public policy interventions. My second hypothesis was that, given that the problems of unemployment and underemployment have metamorphosed markedly from what they were even a couple of decades ago into far more complex and multi-faceted phenomena, there is a critical need for more holistic and innovative approaches to tackling them. Thirdly, with the rapid pace of technological innovation, and its adverse or disruptive impact on labour absorption in the short run, particularly the low skilled ones, it is essential that policy makers master the dynamic processes of both driving technological innovations as well as managing their short to medium - term transient adverse impact on jobs for certain categories of the labour force What Progress Has Been Achieved So Far? I believe that the progress (although still incipient) that has been registered in both advanced and developing countries in tackling the unemployment challenges underscore the validity of the above hypothesis. If we take the US as a very good example, right from the outset of his Presidency, President Obama focused intensively on reducing the US unemployment rate from 8% in 2008 to the full unemployment rate of 4%. So far he has succeeded in large measure in reducing it to just under5%, which is a notable achievement. UK has also been registering similar successes. Apart from resort to quantitative easing policies, Prime Minister David Cameroon also launched very ambitious apprentice development or TVET initiatives. The high rates of youth unemployment in many of the EU countries, notably France, Spain, Italy and Greece are also being steadily impacted upon by similar programmes. A common thread that runs through all the measures adopted by these countries is a more activist and aggressive policy stances rather than the neoclassical laissez faire approaches, that leaves everything to the market to determine. There may not be a magic bullet yet to tackling the complex problems of unemployment and underemployment, but experience so far shows that the following approaches could yield measurable positive results, even in relatively short periods of time: First, more aggressive stances towards growth and employment creation are key, whereby leaders and states must prioritize inclusive growth and adequate productive employment creation in order to effectively address the triple acute needs to absorb the ever-expanding job seekers, ensure quality, decency and sustainability of the jobs and address specific development objectives of poverty reduction,inclusivity and gender equality. Secondly, such aggressive approaches to growth and productive job creation have to be situated in the context of ambitious and well -coordinated medium and long-term plans that aim at agricultural and rural transformation, well managed urbanization processes, promotion of industrial sector expansion, notably the SMSEs and green growth, all underpinned by well- defined complementarities between public and private sector investments. Thirdly, they also have to address the following multiple challenges: the mismatch between the products of the education systems, especially at secondary and university levels on one hand and the practical requirements of the labour markets on the other (termed as “skills and attitudes issues”); improvement and expansion of TVET education; need for promoting the entrepreneuship spirit among women, youth and school leavers, especially in contexts where the entrepreneurial culture is weak; ensuring access to affordable financing and business development facilities; and technological innovation for job creation. Reviewing Rwanda’s case to date clearly shows that the strategies adopted by the Government since EDPRS1, increasingly fit the bill of the above desirable ambitious approaches to addressing effectively the challenges of unemployment and underemployment. In attempting to measure the extent of all this, we in the One UN Rwanda Family undertook through ILO and ITC a comprehensive mapping and analysis of all the strategies and programmes the Government has so far put in place to address these problems, and the survey results yield a picture of an admirable array of initiatives, that are also being whole-heartedly supported by several Development Partners. From the National Employment Programme overseen by MIFOTRA to accelerated industrial and SMSE development and HangaUmurimo, implemented by MINICOM, the ambitious TVET programme overseen by MINEDUC and WDA, YEGO, AgaciroKanjye and Youth Conneckt being implemented by MYICT, Vision 2020 Umurenge Programme (VUP) by MINALOC, aggressive investment promotion by RDB, the broad range of services being provided by BDF and a comprehensive graduate internship scheme, a clear picture emerges of a very strong commitment by the Government to addressing the problems of employment and transformation backed by well-formulated initatives. It is also notable that these schemes are backed by a broad range of Development Partners, including the UN agencies, bilateral and multi-lateral agencies as well as the private sector, international and national NGOs, cooperatives and workers organizations. What is urgently required at this point is a comprehensive and deep empirical analysis of the implementation experience of these programmes and the impact they are making on the unemployment challenges being faced by the country as well as the course correction or reinforcement measures that may have to be carried out in order for the desired results to be optimally attained. The One UN Rwanda Team is gearing itselfup to provide support to such an evaluation process. In the meantime, policy makers and development partners alike could derive some encouragement from the fact that the current estimated annual off-farm creation rate has reached close to 150,000 from 100,000 in 2012 and against the EDPRS target of 200,000. The writer is One UN Resident Coordinator in Rwanda.

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Cracking the unemployment and underemployment challenges – What have we learnt and what progress has been made to date?