Thursday, 22 December 2011

The Great Mismatch between the labour market and universities

The ever high unemployment levels worldwide and particularly the upsurge of youth unemployment is getting more and more people worrying. The hardship of finding a proper job for a recent graduate has become next to impossible in 45%-youth-unemployed Spain or 42%-youth-unemployed Greece. Other countries aren’t far behind. Europe’s youth is locked in an unemployment trap and some go so far to call it a ‘lost generation’. I refuse to be that pessimistic as the amount of brilliant young minds created is increasing with the technological development, student ‘migration’ and widening exposure to new ideas and ways of thinking. However, the fact that they remain unemployed stands and the solutions are lacking. Although I won’t go in much detail on how to fix youth unemployment here (as I see the problem of unemployment being solved through restoring confidence and removing uncertainty in the economy in order to increase private sector investment and eventually hiring) I will touch upon the mismatch that has risen between universities and the labour market. 


Certain claims suggest that universities are not preparing the graduates good enough for jobs in the private sector, particularly for small and medium sized businesses. All those taking on apprenticeships are deemed too inexperienced and are turned down at job interviews. Unfortunately this is normal during a crisis. More experienced workers who lost their jobs will pick up the available ones. How can a graduate, no matter how impressive his CV is, compete with someone with 10 or more years of experience in the desired sector of work? This is why I find it strange why some advocate for government intervention in encouraging the employers to hire more young people, or better yet to encourage universities to offer a better skill-oriented program to graduates making them more competitive.

There are suggestions that universities should be encouraged by the government to provide more employability skills in order for the companies to be likely to hire and be more open to graduate students. This would be a wrong approach. Providing incentives to the education system to change will be costly and could produce unwanted results such as many below average schools taking in taxpayer’s money without using it in the right direction. Besides, how can the government verify whether the programs offered are any good, or helpful at all? The universities can always defend themselves that the program is new and it needs time for it to improve. By that time a lot of money will be spent and nothing will be gained in return. As a consequence the policy will result in squandering resources and without any real effect on employment or enhanced skills for that matter.

A much better approach would be to let the universities decide on their own whether or not to introduce such a program based on the experience of their students and the type of students they wish to attract. By offering a unique program a university will be able to distinct itself from others and attract more students. They will form their programs based on the demand signals they receive from the students. If there is a higher demand for more employment skills related programs, the universities who supply it will see an upsurge of applications and revenue. By offering what the students want they can charge higher prices and seize the rising demand, if there indeed is any. Today most students choose finance and economics programs hoping for a high return on their invested tuition. The majority of space and programs at the universities for those types of students simply shows that the universities are adopting the supply of their services. And it’s not that the universities don’t offer other, less attractive programs as well. They do, but since the demand for these is much lower, so is the supply.

The incentive for more hiring must go the opposite way. The businesses who wish to take on more apprenticeships or more graduate level students should advocate a need for more skills based programs. When the students notice this is important for them to get a job at a certain company they will look for universities which offer such a skill-oriented program. Upon observing an increase in demand for such programs the universities themselves will decide whether or not to engage in it and offer it to the students. It would be wrong to demand from the government to impose more skill-oriented programs onto universities so that we could increase the graduate hiring rate. There is no guarantee the businesses will react in the right direction and indeed start hiring more graduates. If they rather take in an experienced hire, no university program will make them change their minds. A government subsidy could change their mind, but then the problem is shifted towards a different angle – age discrimination and diversion of the firms’ resources towards a political market. The problem wouldn’t be solved, it would, much like in most government intervention programs, only be shifted away from one group to another.

The only thing the government could do in terms of incentives is to reduce regulatory requirements and employment taxes that discourage businesses from hiring. The issue isn’t the lack of skills handed to the graduates, it’s the lack of motivation for hiring by the employers.

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