Denmark’s Lesson to Ethiopia on Youth Unemployment

A recent World Bank report entitled, “Why So Idle? Wages and Employment in a Crowded Labor Market,” the researchers argue that underlining the inefficiency of the labor market in Ethiopia is due to the labor market’s inability to absorb the excess supply of youth and the high number of untrained low skill workers who are not producing competitive products that attract and sustain customers to become competitive globally.

A second report by the Ethiopia Development Research Institute (EDSI) found the lack of basic know-how of recent graduates in structuring CVs, preparing for interviews or approaching potential employers. Moreover, both reports noted that Ethiopia should be supplying the labor market with graduates in fields that should be in demand such as the construction, services, science, and technology but there appeared to be a “lack of proper matching between the right jobs and the right workers.”

Despite the country’s respectable economic growth, the facts cited by the two reports are hampering efforts to address the problem. Underemployment and unemployment, coupled with the inadequate, inconsistent and disorganized level of productivity in the supply chain are endangering the nation’s economic growth and also contributed to the civil unrest that rocked the country last year.

One thing I have observed has been numerous articles, radio programs and TV segments talking about job creation for the youth in Ethiopia. However, what these reports lack are the details as to how they how to help foster the right environment to create jobs for the youth. There is no mention of qualitative data collected, job placements schemes for formal employment and even examples of feasibility studies on job creation schemes regionally. Therefore one mechanism I would suggest to address youth unemployment in line with the findings of the World Bank and EDSI report; would be the concept of unemployment insurance union. The concept has been used to lower unemployment in both developed countries such as Denmark and developing countries, such as the Philippines.

To understand the basics of how unemployment insurances works, think of it as job training recycling plant that takes in the youth before they enter the job market and continues while they are seeking employment. Moreover, if the unemployed youth do not find a job or are fired from their job; the training continues until they become employable again. It is by all accounts a continuous recycle job training in par with the demand of the labor market.

To make this process sustainable, unemployment insurances create mechanisms made up of different actors within the labor market; such as the unemployed youth, the government, private sectors, educational institutions, and donors: with each organ contributing their share, organized under one umbrella of the decision-making body. To simplify how such a complex system works, let us look at Denmark, a country I have lived in and studied in-depth, to explain how unemployment insurance unions function.

In Denmark, both the government and private sectors realized they share a common challenge when it came to the labor market. From the government side, it had a high supply of youth graduates who were under qualified for the ever changing demands of the domestic and international labor market. On the other hand, the private sector was oversupplied by job seekers who did not have the skills set to become competitive in the private sector both domestically and internationally.

To address these outstanding issues, the government and the largest union of private run industries in Denmark (with over 200 companies) joined together to create what is known as an unemployment insurance or in Danish, A-kasser. The unemployment insurance was divided into two areas to absorb the youth into the labor market. For those who had university education or higher, unemployment academics (Akadamic) insurance was created and for those with basic or no formal education, unemployment insurance (basic) was created.

Now the responsibility of the government within both A-Kasser unions was to create a conducive environment for the public and private sector to tap into a competent workforce within the labor market. The responsibility of the private sector within A-Kasser was to update the government on what type of job training their potential employees needed to be employed. To accomplish such a task, the government pressured the Central Static Agency (CSA) to work with the Ministry of Labor to compile a yearly data on projections of labor trends within the economy and make it available to the population. It advised the ministry of education to restructure the educational curricular so that it is in line with the labor trajectory of the economy of the country in line with the Central Static Agency’s data.

To train the youth for the job market, the government created a department known as “Job Centers,” to be integrated within each sub-districts of all major cities. A job center is basically an office that compromises of staff tutors, volunteers and experts; that helps place unemployed youth in different job training departments within its branches. The responsibility of the job centers is to give three to six-month intensive training to graduate students in line with the demand of the private sector unions.

Thus since the government had put in place a conducive environment for job training to consistently supply the labor market with competent, updated workforce; the private sector is then encouraged to hire competent youth at a competitive price, once the job centers has trained the youth, in line with the demand of the public and private sector guidelines. This, in turn, creates an incentive for the youth, for they now have a safety net, that consistently trains them to be in demand, both for formal employment and for self-employment.

For such a system to become sustainable, the government contributes financially to the cost of building the job centers, paying for trainee staff and providing monthly basic living allowances for the youth. The private sector agrees to share some cost of training the unemployed youth (after they have received basic training from the job centers) and also agrees to hire competent youth for internships and job placement.

In return, the youth have to agree to pay back a percentage of their salary on a monthly base (once they have been hired on full-time basis) to the unemployment insurance union. In return, the government agrees to deduct some taxes from the net income of fully hired former unemployed youth. Therefore by creating such a chain of checks and balances and co-dependence between the unemployed youth, government and the private sector, the unemployment insurances unions help unemployed youth with the skills they need to be either formally employed, become sub-contractors to supply industries or become successful self-employed individuals.

Even if different countries restructure their unemployment insurance schemes depending on their reality on the ground, what could lead to the success of unemployment insurances is that it needs a strong, centralized, flexible, committed and innovative government, which is the case for Ethiopia. With the second edition of the Growth & Transformation Plan (GTP II) program still on track and the current reform in the areas of smoother bureaucratic process in place, centralized decision making and integrating government agencies; if the reforms become successful, then Ethiopia could have the foundation to make unemployment insurances become a pragmatic tool to lower unemployment, tackle underemployment and attract both local and foreign firms to invest in a country that has cheaper labor force, competitive labor laws, while providing a competent workforce.

Even though the Ethiopian Government doesn’t have the funds to fully fund the unemployment insurance, it does have international partners such as the European Union who for example have put aside 200 million dollars to address job creation for Ethiopian youth and refugees hosted in Ethiopia. Ethiopia also has a committed government that is finally ready to address mass unemployment.

It was recently announced by President Mulatu Teshome that the government has put in place 10 billion birr to address job opportunity for the youth. Ethiopians well-developed community-based bureaucratic system such as wereda’s who already have idle space within their compound that can be converted cost effectively into to Job centers, can offset the high cost of constructing offices in each districts of the city. Moreover by staffing the job centers with recent graduates and volunteers for basic training of unemployed youth and hiring on part time bases, public school teachers as experts in different fields; it will create an extra income for recent graduates, work experience for volunteers and an extra income for modestly paid government teachers, while training the unemployed to become attractive to be hired in the labor market.

It is important to understand unemployment insurances not only create the favorable environment for job creation but they also create jobs for daily laborers in building or maintaining job centers. That is why it is ideal for Ethiopia to integrate integrating unemployment insurances union with its other job creation mechanisms such as SMEs for self-employment.

As stated in the World Bank and EDSI reports, “lack of proper matching between the right jobs and the right workers” is the main obstacle in creating the conducive environment to tackle youth unemployment.

By Neftalem Fikre Hailemeskel
Neftalem Fikre Hailemeskel has a Master Degree from Aalborg University Copenhagen; Denmark : on Global Refugee Studies: focusing on Integration of Immigrant youth into the job market

Published on Feb 18,2017 [ Vol 17 ,No 876]



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