Rising unemployment – Are there too many graduates?

Fast growing East Asian economies have rapidly increased the numbers of students attending university in recent years. Now the pool of unemployed graduates is rising to worrying levels in the region generally – and even in some high-growth economies.

Of particular concern is whether high graduate unemployment is a temporary blip or reflects a chronic oversupply of graduates, even as many employers say they cannot find people with the right skills.

Experts stress that Asian countries need to focus not just on expanding higher education but also ensuring quality at the same time if graduate unemployment is to be contained.

In South Korea the number of ‘economically inactive’ graduates has passed three million for the first time, according to government figures released on 3 February, up just over 3% from the previous year.

South Korea has among the highest university participation rates in the world, at around 80% compared with 15% to 40% for most advanced economies and below 15% for most developing countries in Asia.

“The main reason [for rising joblessness] is that there is a growing number of college graduates,” said Kong Mi-sook from Korea’s statistics agency. He believes the number of unemployed with college degrees could continue on an upward trend.

Other Korean government officials have said the oversupply could last for as long as 10 years, until demographic decline reduces the numbers.

In Japan the situation may be easing, although only slightly, after years of rising graduate unemployment.

Singapore, China and India

Even in booming Singapore, which is importing highly skilled workers to stem a talent shortage, graduate unemployment rose from 3.3% to 3.6% in the first half of 2013, higher than the average unemployment rate in Singapore of around 2%.

The Singaporean government has been scaling back its higher education ambitions, capping the gross enrolment rate at 25%.

National Development Minister Khaw Boon Wan said last year that Singapore could not be a nation entirely made up of graduates. “Can you have a whole country where 100% are graduates? I am not so sure. What you do not want is to create huge graduate unemployment.”

Other economists argued that it was more an indication of slowing economic growth in Singapore, than a graduate overhang.

In China job vacancies available to a record number of graduates have seen a year on year decrease, with official media saying that the number of graduates is ‘outrunning’ economic growth.

People with postgraduate qualifications are even more likely to be jobless than those with undergraduate degrees, while graduate unemployment is higher than for those with vocational qualifications.

India has seen a surge in graduate unemployment in the past two years – one in three graduates up to the age of 29 was unemployed, according to the Labour Ministry’s Youth Employment-Unemployment Scenario 2012-13 released last November.

In India, “graduates spend a lot of time accumulating different degrees and ultimately realise that these degrees aren’t going to provide a passport into lucrative private sector jobs”, said Craig Jeffrey, professor of development geography at Oxford University.

“In the past there were a lot of state jobs that were an outlet for graduates, but those state jobs are increasingly in short supply – so you see 27,000 apply in India for the same job.”

Talent shortages

Yet at the same time employers complain in each of these countries they cannot get the kind of graduates they need.

The 2013 Talent Shortage Survey by ManpowerGroup, a US-based human resources multinational, found acute problems in recruiting talent in many Asian countries but particularly in Japan and India.

Some 61% of employers surveyed in India, and 85% in Japan, said talent shortages prevented them from hiring people with needed skills, according to ManpowerGroup, which surveyed 8,600 employers in Asia and the Pacific for its 2013 report.

This compared to a global average of around 35% of employers reporting recruitment problems.

The figure for Japan was the highest recorded in the eight-year history of the survey for Japan. But it is not just in Japan that the situation is worsening.

More than one in three employers in the Asia Pacific region reported difficulty in filling positions because of a lack of suitable candidates – the highest proportion since 2007, just prior to the global recession.

The proportion of employers reporting talent shortage problems increased by 6%, to 51% from 45% in 2012, said ManpowerGroup.

In China, Japan and India the proportion of employers reporting skills gaps grew by 12%, 4% and 13% respectively. This compares to a drop in the gap for countries like the United States and Germany as the economic slowdown in the West was coming to an end.

But unusually, the demand does not always correspond to the country’s jobless rates, notes the ManpowerGroup.

‘Frictional’ labour market

Economists insist that there is no oversupply since graduate salaries are generally stable or rising – although a McKinsey report last year suggested graduate oversupply was having a dampening effect on salaries in Singapore. Social scientists suggest there may be too many of the ‘wrong type’ of graduate.

The World Bank speaks of a ‘frictional’ labour market, when there are “relatively high rates of tertiary graduate unemployment along with relatively high vacancy rates or it takes a long time for employers to fill up positions”, said Prateek Tandon, lead economist for East Asia at the World Bank in Washington DC.

“Often this is an indication of skills shortages among graduate students.

“I would be cautious in framing it in terms of only an oversupply of graduates. It is important to look at the skills dimension and the kind of skills tertiary graduates have,” Tandon told University World News.

The debate about relevant skills, skills mismatch and labour market-appropriate degrees is as common in Asia as it is in the West, where the proportion of the population that are graduates is generally higher.

But the picture is more complex, as the region includes highly developed countries like Japan and South Korea, service economies hoping to move up the technology value chain like Singapore, middle-income countries like Thailand and Malaysia, and agricultural economies such as Laos and Cambodia.

Some are hoping to become industrialised, and need to prepare graduates accordingly. Others may ‘leapfrog’ that stage into service economies. And no-one can predict what kinds of disruptive technologies will emerge in future, in order to prepare the next crop of graduates.

Skills

Export-led economies of East Asia have emphasised the importance of technical skills. But according to UNESCO, as countries move up the value chain labour productivity is increasingly driven by high-level thinking and behavioural skills. And these will grow.

“The skills gap [in Asia] is already a reality and getting worse,” according to Graduate Employability in Asia, a report published in 2013 by UNESCO’s Asia and Pacific Regional Bureau for Education in Bangkok.

But not all analysts agree with the shift to a focus on skills.

“Employers want students to be trained according to the needs of the workplace and want to do away with subjects that are irrelevant to the needs of the working world. Academics agree that some changes are needed but emphasise these changes must balance the demands from industry against the needs of civil society and social development,” said the UNESCO report.

“Currently, the discourse on graduate employability is framed within the context of industry-readiness. However, industry-readiness does not bring about a socially oriented economy and knowledge society,” according to Graduate Employability in Asia.

“Higher education institutions must reclaim their role as socially relevant institutions that produce graduates with the necessary attributes for a sustainable society,” said the report.

It is not known what proportion of graduates have or do not have these skills and competencies. “All of these surveys are based on perceptions of employers,” noted the World Bank’s Patreek Tandon.

Quality

And not everyone agrees that a focus on skills will solve the problem of graduate unemployment in Asia.

According to the UNESCO report: “The number of unemployed graduates is partly caused by economic imbalances. The financial crisis and economic downturns in recent years are certainly reasons for the reduction in the number of jobs, but supply-side factors also contributed to the high numbers of unemployed graduates.”

The report noted that relevance of degree programmes matters. But it also said that “the oversupply of graduates in some fields was an issue”. These included a huge oversupply of nursing graduates in the Philippines, for example.

It may be impossible to predict the skills required for the future, so the emphasis needs to be on improving the quality of the higher education sector overall, according to Tandon.

“Across all countries in East Asia, what we have seen in our work on skills is that all countries have room for improvement in terms of delivering high quality education to make graduates able to be more effective on the job in both cognitive and non-cognitive skills.”

What is clear is that whatever the causes of graduate unemployment, higher education and the supply and types of graduate have become an important economic issue.

“In most of these countries across Asia higher education is now squarely on the growth agenda – it is no longer an issue for ministries of higher education to deal with; it is also on the forefront of the agenda for ministries of finance and economics,” said Tandon.