Unemployment: Diversifying the market

Unemployment has turned into a big economic problem. The country is burdened with a staggering number of unemployed university graduates. Some have characterised it as structural unemployment - a case of unemployment that happens when too many applicants run after a limited number of available jobs at a given wage.
How to reduce the number of unemployed graduates? Some have proposed that vocational and technical education should be prioritised as job market is overcrowded by university graduates. Should the priority come in terms of supply push such as increased government spending and attention given to technical and vocational education? Or should it come in terms of supply contraction such as controlling quality of education and degrees at the university level?
THE ORIGIN AND CAUSES: The solution of the unemployment problem requires a rigorous analysis of its origin. What are the causes behind the current unemployment problem? The nature of the unemployment can render us some clue to find out the origin and causes of unemployment. For this purpose, we first set a picture like this. Let us assume that N number of university graduates is unemployed. Also assume for the moment that average market wage is fixed and the number of available jobs at the given average market wage is also fixed. That means at a point of time we expect to see a fixed number of wage employment. Given this assumption, we now break down the N as composed of the following components: the fraction of unemployment due to lack of available jobs (N1); the fraction of unemployment due to dampened growth of small business and entrepreneurial activities (N2); the fraction of unemployment due to lack of specialisation and diversification (N3); and the fraction of unemployment due to malfunctioning in the education field (N4). Four components (N1, N2, N3, and N4) combined constitute the total number of unemployed graduates.
N number of unemployment is not totally due to the lack of available jobs in market. In fact, unemployment problem is totally independent of the movement and characteristics of the average market wage. Why is this so? This assertion can be confirmed by checking the factors on which different components of unemployment depend on. The first component depends on market wage and different other factors. The second component depends on the level of corruption; the higher the level of corruption, the less is the growth of small business and entrepreneurial activities. The third component depends on rules and regulations that foster robust market structure and competition. The fourth component depends on the strength of quality control in the education field.  We say more clearly as follows:

CORRUPTION AND UNEMPLOYMENT:  The relation between corruption and unemployment can run in two ways: unemployment can cause corruption and corruption can cause unemployment. It is the second relation that matters for our country. In an article published in the Financial Express on June 06, 2014 under the heading Unemployment and Corruption, we showed that corruption causes unemployment creating a permanent supply shock where the supply shock emerges from the slackness in the growth of small business and entrepreneurial activities. We argued that corruption causes unemployment for special type of labour - and that is educated labour. The higher the level of corruption, the higher the number of unemployed graduates will be.  Corruption creates an obstacle to the growth of small business and entrepreneurial activities. The most common example that we can cite is the unwanted rent and bribe seeking attitude of corrupted government officials and political workers and leaders. Due to corruption, the startup cost of small businesses mounts to a level that ultimately becomes a burden on those who want to build a career through establishing a small business.
Corruption has been a heavy drag on our economic growth which has apparently gone unnoticed. People hardly see any link between corruption and unemployment.  The link is quite obscure to decipher because corruption causes unemployment problem through a very uncanny channel that is not recognised in the mainstream macroeconomic employment and income analysis. The point is that reducing the number of unemployed graduates requires eliminating barriers to the growth of small business and entrepreneurial activities which demands the elimination of corruption.
EMPLOYMENT GENERATION THROUGH SPECIALISATION AND DIVERSIFICATION: A peculiar nature of the unemployment problem in Bangladesh is that the number of unemployed graduates is not in any way dependent on the efficiency and effectiveness of monetary and fiscal policy.  The unemployment problem in our country has a lot to do with the structure of markets and health of competition. Bangladesh in this respect will not score very high. The reason is that over the time there has been a change in the demographic composition. The number of highly educated graduates is increasing day by day but markets are still lacking that structure that can accommodate this ever-increasing number of graduates. Worst of all, the laws and regulations that may foster robust competitive market structure with due specialisation are sorely missing.
In support of this assertion several real-world examples can be cited. For a long time, some firms and business institutions are holding and doing a type of business that should not in any way belong to them. The best example is the courier companies like S. A. Paribahan. This company is doing money transfer business for a long time which should have been banned long ago. Our polic- makers have failed to realise that this one company is creating a mess whose burden is borne by the total economy. The money transfer business of courier companies has impeded the growth of more banking activities in the country. If the government had banned money transfer business by courier companies, people would have used banking service which would have spurred more growth in the banking sector helping to absorb university graduates. Courier companies employ semi-skilled or unskilled labour to do their business. They are creating problems in two ways. One the one hand, they are impeding growth of the banking  sector. On the other hand, they are replacing the demand for educated labour by unskilled and semi-skilled persons who otherwise would not have great difficulty in finding jobs.
The story doesn't end here. Recently another problem has cropped up which is also linked to the banking sector. Mobile banking has opened up a promising business potential for the banking sector. But the problem is that the banking sector is far from the real beneficiary of this business segment. Instead, the representatives of mobile companies and different vendors are sucking the profit out of this business segment. The strict enforcement of laws regulating mobile banking is absent. The policy-makers should realise that mobile banking is a special business prime beneficiary of which should be the banks.
On the other hand, market dynamics have failed to adjust with the increasing number of university graduates. Market economy structure of our country is too concentrated and feeble. There is a lack of diversity in rendering services and products. In most of the cases the government is holding ownership in some industry that ultimately produces negative benefit. The privatisation phobia is still persistent. But it should be remembered that as a country's proportion of total population getting higher education increases, its market structure must be able to diversify as much as possible. Privatisation and minimising the government's holding of ownership of control is one of the steps to diversify market. Privatisation phobia is a myth in which only the laymen find a trace of truth, if any.
EDUCATION, MARKET AND UNEMPLOYMENT: In a free enterprise system, price guides the allocation of resources and so it does for education. But the question is whether price can ensure a distribution of graduates in several fields of education in such a way that demand and supply in the job market is always equal. The answer is No. The reason is that the conventional supply and demand mechanism is not  applicable in the academics. If one person sees that there is a higher demand for business graduates, he may opt for studying business rather than other disciplines such as mathematics. Now faced with the increased demand for business studies, universities may increase the price so that exact number of seats available is exactly matched by the admitted number of applicants. However, this free interplay of demand and supply forces in the academics produces bad result. Let us imagine a case like this. As the cost of business education or price of business education decreases, the number of people willing to study business increases and as it increases, demand decreases. On the other hand, as the price for business education increases, universities offering business education will admit more business students while adjusting its capacity over the time. The equilibrium number of business graduates is determined at the intersection point of the demand and supply curves. This is what the classical theory says.

In the figure below where number of business graduates is measured on the horizontal axis and price for business degree is measured on the vertical axis, equilibrium number of graduates is N1 and the equilibrium price is p0. Now say that price is p2. At this price, demand for business education exceeds the available supply capacity of universities or demand exceeds supply by (N2-N0). Now according to the classical theory, university should increase price  until demand and supply become equal.
That means price will rise from p2 to p0. But the job market would have been much better if this equilibrium had never been reached! The strange fact is that price p2 is an equilibrium price rather than the price p0. What is the justification for this? In the real world, job market equilibrium will be achieved when there is an excess demand. In other words, the universities and schools should provide education in such way that total of number of potential people who are willing to study, say business, and can afford to pay for such study exceeds the actual number of people permitted or admitted in universities and schools.  That means equilibrium in the job markets requires disequilibrium in the academics implying that supply and demand are never equal and that demand always exceeds the available supply. In economic term this is called rationing. Our policy-makers should at least recognise that equilibrium in academics in the sense that demand and supply are equal is the perfect reckoning for the disequilibrium in the job market indicating that too many graduates will be after limited number of available jobs. Hence, the problem of unemployment emerges. Job market equilibrium requires that there must be an excess demand in the academic level.
Otherwise, the problem of structural employment will arise. This shows why the vocational and technical education is not the panacea for reducing the number of unemployed graduates. In fact, we will hardly be able to derive any significant reduction in unemployment from any initiative in this direction without taking care of the mismatch in the academics as we have mentioned above.
SUGGESTIONS :  The above analysis clearly shows on which variables and factors we should focus. The variables are:  (1) reduction of the level of corruption to reduce unemployment.  (2) Strict enforcement of rules and regulations that create strong competitive structure and support specialisations. (3) Privatisation  fosters diversity in economic activities. (4) Applying the rationing technique that maintains excess demand in the academics and equilibrium in the job market.  In the formal manner, we can set up a test as follows:

The author writes from the                  University of Denver, USA. [email protected]