Global Economy

Why aren’t our millennials at work?

Originally published in Daily FT and Republic Next

By Nishtha Chadha

Today is International Youth Day; a day described as the United Nations as the “annual celebration of the role of young women and men as essential partners in change”. Everyday, we see young people across the globe emanating entrepreneurial drive and catalysing positive growth. ‘Millennials’ have become the symbol of a new world order, based on innovation and large-scale mutual exchange.

How do we create jobs that young people feel dignified doing? 

Yet, here in Sri Lanka, we see a very different story. Rather than catalysing growth, many of Sri Lanka’s talented youth languish in unemployment. Popular rhetoric often defines these young people as ‘lazy’ and ‘ungrateful’, unwilling to fill blue collar vacancies with low social repertoire and climb the ever-elusive career ‘ladder’. But with issues of unemployment pervading the youth demographic for over four decades now, despite having the highest literacy rate in the region, perhaps it is time for a new conversation. How do we create jobs that young people feel dignified doing?

Educated young people make up a third of Sri Lanka’s unemployed, while over 30% of the county’s total informal workers belong to the youth demographic. Often these numbers are attributed to the infamous ‘job-skill gap’, where tertiary-educated youth are left unequipped to acquire private sector vacancies, but over-educated to fill opportunities in labour-intensive industries. However, this hypothesis also ignores an entire socio-cultural dimension that underscores many young people’s unwillingness to settle for in-demand blue collar careers. 

According to the Department of Census and Statistics [DCS] (2017), the most difficult vacancies to fill in the job market were as follows:

  1. Sewing Machine Operators

  2. Security Guards

  3. Commercial and Sales Representatives

  4. Other Manufacturing Labourers

  5. Cleaners and Helpers in Offices, Hotels and Other Establishments

When one reviews this data it is hardly surprising that after spending 16 years in education, young people are unwilling to forego their intellectual capital and fill these vacancies. Instead, many wait in line for public sector opportunities, characterised by high social status, lifetime employment and funded by taxpayer money. The government often uses this as a vote-securing scheme, having offered 16,000 graduate roles just last month in preparation for the forthcoming election. But with an already inflated public sector, slowing growth rates and a growing toll of non-contributory pensions, this strategy has become both unsustainable and unreliable. 

Closing the gap

DCS data suggests that only 7.2% of private sector vacancies are in high-skill occupations.

While the private sector does account for the majority share of youth employment, DCS data suggests that only 7.2% of private sector vacancies are in high-skill occupations. Slow job creation has become a persistent characteristic of the Sri Lankan economy, with highly restrictive employment protection legislation and skewed bargaining power of trade unions significantly raising labour costs and impeding job creation.

Roughly 1.5 million Sri Lankans migrate internationally for work

As a result, roughly 1.5 million Sri Lankans migrate internationally for work (approximately one fifth of the domestic workforce). Over 40% of these migrants belong to the “skilled” labour category, suggesting a worrying trend of missed opportunity. Certainly, the fact that home-grown skilled labour has no place in a growing upper-middle economy is a cause for serious concern in itself.

As Sri Lanka faces up to the growing challenge of an ageing population, the country needs to create more and better jobs to sustain growth and make optimal use of its working-age population. This suggests an urgent need for structural reforms to increase competitiveness and openness to FDI, which will create more productive and higher-paying jobs as foreign firms bring in new technology and better management practices to the Sri Lankan market. Trade liberalisation can also play a critical role in producing large-scale opportunities for educated workers, particularly by plugging into regional and global supply chains. Indeed, with the right reforms in place, active engagement with foreign economies could present unparalleled opportunity to kickstart high-quality job creation in Sri Lanka and give many unemployed skilled graduates the opportunity to pursue fulfilling careers that positively contribute to the national economy. 

Moreover, as the global economy shifts increasingly towards services, personal consumption and trade in digital goods, there needs to be a concerted effort towards promoting innovation and entrepreneurship amongst the youth population and moving people away from traditional public sector careers. Sri Lankan investment in research and development (R&D) only amounts 0.07 percent of total Government expenditure (2017). As such, there is a pressing need to improve public and private funding of R&D, whilst simultaneously addressing the current fragmentation of R&D institutions, in order to create tangible outcomes within the innovation space. Improving the intellectual property rights regime and creating an ecosystem of early-stage finance and incubation facilities will be instrumental in mobilising young people and facilitating entrepreneurial growth. 

Entrepreneurship and opening up

Growing entrepreneurship can not only transition Sri Lanka into a more innovative and complex economy, but simultaneously create a broad range of high-quality jobs in a variety of competitive industries across domestic and international markets. Small nations such as Israel and Singapore have shown the scale of returns that investment into innovation can provide, attracting Silicon Valley’s largest players to set up incubators and accelerators in their countries. Indeed, at the heart of both nations’ technological success has been the cultivation of a targeted public-private ecosystem for innovation, as well as an absolute openness to diverse participation.

If Sri Lanka is to make the most of its youth potential, it needs to reform the very fabric of its workforce. Promotion of unconventional career paths and greater cooperation between the public and private sectors are a must. Current barriers to foreign participation must also be removed. Diversity of thought and exchange of ideas have been proven as key drivers of innovation, and these need to be promoted through people-friendly policies and the removal of burdensome mobility and investment regulations. Sri Lanka’s youth need to be given opportunities to access foreign capital and learn from global leaders in entrepreneurship if they are to form the basis of a new Sri Lankan economy. 

Moreover, by opening up migration policies and flows of labour, Sri Lanka will be able to fill its wealth of low-skill vacancies that currently plague the private sector, without foregoing its local talent. India has been enjoying the fruits of an open border policy with Nepal for over half a century, producing a mutually beneficial arrangement for both parties. Resisting globalisation is merely slowing productivity and resigning educated Sri Lankan youth to careers that they do not feel dignified doing. Youth potential should be harnessed to translate into economic growth and productivity, not heavier burdens on an already struggling economy. 

So, this International Youth Day, let’s have a new conversation about young people. Let’s remove the weight of heavy expectations, and replace it with rigorous strategies for empowerment. Young people are the future of the Sri Lankan economy – so what are we doing to help them shape it?

Limitations in Prof. Hausmann’s policy recommendations

By Premachandra Athukorala

The article originally appeared on the Sunday times 24 January 2016.

The policy recommendations made by Professor Ricardo Hausmann in his presentation at the recent Colombo Economic Summit are based on the ‘product space’ analysis developed and popularised by him and his co-researchers at the Centre for International Development at Harvard University. This approach has a fundamental limitation as policy guidance in this era of economic globalisation, even though their ‘ pictures’ (product space diagrams) look very impressive and have a great appeal to policy makers who take them at face value.

Product space analysis is based on the conventional approach to analysing trade patterns, which treats international trade as an exchange of goods produced entirely from beginning to end within national boundaries. This approach is based on the assumption that factors of production are locked in within national boundaries (that is, it assumes away foreign direct investment, and cross border movement of labour and all inputs used in manufacturing). It completely overlooks the ongoing process of global production sharing (GPS), the breakup of the production processes into separate stages, with each country specialising in a particular stage of the production sequence, which opens up opportunities for countries to specialise in different tasks within vertically integrated global industries.

Parts and components, and final assembly traded within global production networks (‘network trade’) have been growing at a much faster rate compared to trade in goods wholly produced within countries (‘horizontal trade’, the focus of product space analysis). Global production has been the prime driver of export-oriented growth East Asian countries. According to my calculation network trade accounts for over 60 per cent of total manufacturing exports from China, Korea, Taiwan, Malaysia, Singapore, and Thailand. A number of countries in the region (Vietnam and Cambodia are the latest example) have successfully moved from primary product specialisation to exporting manufactured goods (parts and components and final assembly) by joining production networks. This certainly is not ‘Monkeys jumping from low trees to taller trees’ as depicted in product space diagrams.

Policy inferences based on the product space analysis is not consistent with the objective of reaping gains from joining global production networks. As Professor Gerald Helleiner has aptly stated in a best-known article, “The introduction of the possibility of component manufacture and middle-stage processing within international industries knocks the bottom out of any stage theory of the development through industrialisation and trade which focuses upon final products” (Helleiner, Gerald K. (1973), ‘Manufactured Exports from Less-Developed Countries and Multinational Firms’, Economic Journal, 83 (329), p 43) It seems that Prof. Hausmann’s policy advocacy of export promotion has basically been shaped by the Latin American experience.

Latin American countries’ lack-luster record of manufacturing export expansion can be explained to a greater extent by these countries’ failure to reap gains from the ongoing process of global production sharing. I was surprised to note that in the website posting on the Sri Lankan visit, Prof. Hausmann has used Venezuela as a comparator for justifying his policy advocacy for Sri Lanka! Sri Lanka needs to learn lessons from its own past and from the successful countries in our Asian neighbourhood, not from a failed state in Latin America. In the aftermaths of the 1977 liberalisation reforms, a number of electronics multinationals came to Sri Lanka to set up assembly plants. We sadly missed the opportunity to become an export hub based on global production sharing because these MNCs soon left the country in the early 1980s as political instability set in.

Among these lost investment projects was a large assembly plant (with a planned employment of 3000 workers), which made headlines in a Harvard Business Review article. Chet Singh, the founding chairman of the Penang Development Corporation, recently told me that Motorola’s decision to come to Sri Lanka was a big concern to him and the Penang state government at the time because Sri Lanka was a much better location for electronics assembly compared to Penang. Luckily for him (and for Penang) Motorola eventually gave up the Sri Lanka option and set up a plant in Penang. The Motorola plant in Penang currently employ 8500 workers and also acts as the regional R&D centre of that giant multinational enterprise. We need to strive to regain such lost opportunities.

Premachandra Athukorala is an advisor to the Advocata Institute.  He is a Professor of Economics, at the Crawford School of Public Policy, Australia National University.