There is rising deep anxiety about the rapid increase in the rate of graduate unemployment in Ghana. The reality of the job market has sent many graduates back to school and the rest has been left to wonder how to get a foothold in the job market. The number of job openings and vacancies are minimal and one can only imagine the ratio of job applicants to job vacancies. Simply put, there are no jobs to apply to; the labour market supply of graduates has outgrown the labour demand.
The young graduate sits in his or her parent’s house wondering if it was worth obtaining a degree or diploma. They are confronted with thoughts about how to start their career life. The failure of many graduates to get jobs or create jobs for themselves is alarming. Unemployment is the most growing national problem and poses a major security threat to our economy. As such, the high rates of unemployment in the country deserves a concerted attention of all stakeholders especially the government.
Recent headlines have been filled with dramatic differing views about what the causes and solutions are regarding the surge in graduate unemployment. Not surprisingly, policymakers are confused about what the real issues are and what, possibly could be done about them. Ghana is not the only country battling with the rise in graduate unemployment. Even before the financial crisis of 2008/2009, many developed economies were struggling to maintain graduate employment and earnings.
The surge in Ghana’s case is partly attributable due to increase in educational attainment, lack of job creation and policy focus on improving the flows into work for people leaving school. It is easy to read headlines such as “US economy adds 292,000 positions in strong finish to 2015”, and “UK jobless rate at 10-year low”. What are these countries doing differently? The difference is that some countries have begun introducing labour reform programs and policies to address this menace but such cannot be said about Ghana. Around the world, countries with proven labour market policies have higher economic growth and can boast of better job creation records.
Approximately, 5000 students graduate from University of Ghana every year. Ghana has over 10 universities and 10 polytechnics, can you imagine the number of graduates that come out every year? Where are the jobs for these graduates? Why are they not starting their own businesses? Most of them leave school with little or no hope of landing a job. The public sector continues to employ a large number of the formal sector workforce predominantly consisting of graduates.
However, government has recently placed a ban on the public sector employment in certain department and agencies which is partly due to high wages and salary, and an overall large deficits. The resulted fiscal restraint which is also an IMF conditionality to ensuring prudent fiscal management is obvious through the inability of government to increase the salary of its workers. Notwithstanding, an increase in public employment means the government equally needs more revenue to finance the increase in salaries. This result in higher or new taxes and increase in borrowing. Our gross domestic debt to GDP ratio is around 28%. The domestic increase in government borrowing from the banking system has driven up interest rates, reducing investment in the private sector. However, government must take note that a stronger economy would help raise revenues.
So, why will the government not invest in the private sector to generate more wealth in areas such as agriculture, transportation, and manufacturing? With unassailable labour policies, the private sector would crowd out the public sector employment relieving the government of the burden of increased public sector salaries. You need not like Pastor Mensah Otabil to totally agree with him on what he recently said during the springboard meeting in Accra that “I’m looking for the day where Ghana employs just 5% of labour and the rest are employed by private entities”. A booming and efficient private sector growth means the government will benefit from an increase in labour income, consumer spending and corporate profits. But then, the formal private sector is faced with high competition with foreign businesses; burdened with high taxes, lack innovation and inadequate capacity to operate efficiently.
The inability of the formal private sector to generate jobs has pushed many citizens, including a large proportion of the graduates into the informal sector even though they find it unattractive. Though data is not readily available for the percentage of graduates employed in the informal sector, the Ghana Living Standard Survey 6 2014 produced by the Ghana Statistical Service estimates that the informal sector employs about 88% of the working population largely consisting of small to medium-scale businesses (SMEs). These SMEs are made up of irregular employment, casual workers, family workers and predominantly people engaged in own-account work such as traders, sellers, farmers and artisans. The earnings gap between the formal and informal sector is huge, likewise the standard of living resulting in many breathing in abject poverty.
As a country, we cannot boast of any social protection policy, such as unemployment benefits, which would have alleviated the financial burden of the many working age population before finding any paid employment. The high incidence of poverty among informal economy workers is primarily due to lack of access to productive resources, skills, technology and especially capital. The informal sector is known for low productivity as a result of using out-dated tools and labour-intensive technologies. Informal private sector workers escape the regulation of government and as a result suffers neglect of policy makers. They are exposed to bad environmental and risky conditions; lacking occupational health and safety regulations. What bothers me most regarding other work conditions in the informal sector is lack of job security and social protection like paid sick leave, pension, maternity leave, health benefits and retirement savings. How many of the traders at Makola and the cocoa farmers in Sefwi-Wiaso can boast of secured pension and employer benefits? For that reason, many graduates see the informal sector as unattractive. The unattractiveness of the informal sector and the inability of the formal private sector to grow must be a huge concern for our governments.
What can be done
Government must consider an economic action plan (I mean action plan and not “political gimmick”) that will provide investment in the form of grants, business services to SMEs across all sectors especially the formal private sector that have a sustainable business model and a track record of profitability. This can include non-profit organisations that have some history of economic development or have the potential to deliver one or two productivity or growth opportunities to the private sector or the economy. Many Ghanaian SMEs are often met with difficult innovation and skill challenges leading to slow growth and low productivity. They are faced with high cost of borrowing, low investor confidence, and a deteriorating macroeconomic environment.
By supporting the growth of these businesses through government funding, they will be positioned to become competitive both locally and internationally through adoption of modern technologies, facilities expansion, investment in research and development, market and export development, skills advancement and training, commercialization, process improvement and innovation. This funding support could have conditions of job creation and sustainability. Employers will account for the jobs created and sustained, new markets acquired, supply and value chain impact and any other measurable economic gains. A number of people will argue that infrastructure spending is key to making these SMEs thrive, but then governments’ policy on infrastructure development does not use signals from the sectors. However, its focus on fulfilling political promises. Such government spending only adds “noise” to the market. Government officials have pertinacious motivations since they are spending other people’s money. The infrastructure development solely concentrates on public organizations rather than investment in human-quality development and the private sector.
The public sector has the highest budget allocation, but has the lowest productivity compared to the private sector. It seems inconceivable that a country sitting on one of the world largest resources is struggling to create jobs. Government in no doubt is trying to support SMEs through policies like Export Development and Agricultural Investment Fund (EDAIF) where most of the SMEs gets funding at concessionary rates. However, these programs which are usually targeted at the informal sector and lacks the necessary transparency processes, risks and mitigation analysis. Also, they are deficient of evaluation and assessment of its economic impact and suitability. They lack adequate labour market and professional information system.
Government needs to extend and expand these programs to include the formal private sector that has the ability to compete internationally, has some innovative and inimitable opportunities to contribute or speed up growth, and aid job creation. Remaining competitive through innovation and adequate capital, will lead to the creation of new business lines and processes which will boost job creation. Not only will they create jobs but, the competitiveness of the private sector will augment industrialization of the economy; reducing the over dependency on importation of many products. This can be achieved in addition to government ensuring macroeconomic stability, such as low inflation, favorable exchange rates, reasonable taxes and reliable energy supply.
The informal sector is made up wide range of occupations. For instance, consider the street trade in the country now, there is no set of regulations or any coherent policy guiding street vendors. The economy is not strong enough to protect these ones through social policies or to consider such activities as a nuisance to be eradicated. As a result, the informal sector must be regulated well in terms of compliance to laws, operations and adherence to standards in order to attract graduates. By doing so, they would be recognized as strategic pathways to creating jobs, promoting growth and reducing poverty.
Moreover, government through an economic action plan must give subsidies, incentives, and tax credits to companies that are employing fresh graduates and interns from the polytechnics and universities. Some employers are shunning many graduates as lacking the requisite experience and skills to step in and do a job instantly. Hence, the need for government to bridge the gap by increasing flow of fresh graduates into employment. Government must give internship tax credits to companies taking on interns from the various universities. This will enhance graduates with employable skills through work experience.
When they are out of school, they will have recent work experiences to add their resumes. Students are equipped with the basic skills and work ethics required for workplace success. Together with the networking opportunities, it will increase their chance of successfully finding ongoing employment. Government must drive employers by providing financial incentives to employers to help them offset the salary cost of hiring graduates, apprentices, and interns. This will address to some extent the difficulties graduates encounter gaining meaningful employment experience. As well, this will improve the overall labour market participation in the country.
Most current graduates fall within the millennial generation (15years to 35years). They have grown up in a time of a swift transformation, giving them a set of precedencies and expectations extremely different from earlier generations. This must signal policymakers to provide them with a meaningful life through gainful employment. With inflation rising rapidly at 19%, local currency averaging at around GH₵4.0 per US dollar, declining business confidence, and an overall gloomy global economy, we need policies back with an action plan to drive the private sector to create employment and income earning opportunities for large graduates churning out from the various educational institutions. The high splurge of government spending if directed properly, with a long-term strategy in addition to using market indicators would have yielded an increase in job creation.
In the short-term, temporary fiscal stimulus resulting from government spending tends to have temporary effects which customarily show a negative relationship with unemployment and inflation—this story cannot be associated with Ghana. As we appreciate the need for spending, we must be realistic about the impact of policies and the general health of the economy. Government investments and policies have to be “clever” to ensure a good standard of living and a better prospect for the future generation. The private sector makes up growing of Ghana’s economy—government need to strengthen SMEs to compete globally, make profits, pay taxes, and create jobs. Otherwise, high levels of graduate unemployment will become an eternal feature of the Ghanaian economic landscape.
Overcoming the big challenge
Unemployment rate in the developed world is the most timely and important measure of economic performance. Unfortunately, in Ghana, we are unable to produce regular estimates of employment, unemployment, wage earnings, and productivity, to mention but a few. We hear news on job creation and employment on political platforms and when the government has the opportunity to address the public. The fact is, statistics on unemployment is critically lacking in Ghana. If we had reliable data and institutions working to their maximum capability, the President or Minister of Education has no responsibility to educate us on jobs being created. Policymaking processes are usually decided on the basis of a rational assessment of data: Data provides insights, drives strategy, states the past, presents and predicts the future.
We need to raise our game as a country by providing accurate and reliable data, otherwise developing policies, finding remedies to economic challenges will be a herculean task.
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Eric Kofi Kontoh