Labour Market Policies and Youth Unemployment: A Comparative study for Ghana and United Kingdom

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Labour Market Policies and Youth Unemployment: A Comparative study for Ghana and United Kingdom

By: Abena Bemah

 

Abstract

This paper reviews the main characteristics of the labour market situation for Ghana and the United Kingdom, focusing on the global employment trends. It explains that youth unemployment is caused by the aggregate demand, wages and the size of the youth labour force. It further discusses the active labour market policies available in Ghana and the UK focusing on youth unemployment. A comparison is made between the “New Deal Package” in the UK and the “Skills Training and Employment Training Programme” in Ghana. Lessons are drawn from the discussions made. The paper concludes that active labour market policies takes into account the economic context, resources available and the target group. In all efforts should be made in ensuring the promotion of quality jobs that increases the efficiency of the unemployed youth.

 

1.0.      Introduction

Labour market Policies (LMPs)[1] are policies that provide income replacement and labour market integration measures to those seeking work, usually the unemployed, the underemployed and the employed who are looking for better jobs (Auer et al:2008, 13). There are two forms of labour market policies. Passive policies focus on replacement income in times when the individual do not have a job, whiles active policies help with integration the labour market either by focusing on the demand side or on the supply side. Both active and passive policies are helpful in times of crises, especially in changing era of globalisation (Berg J. et al: 2006, 144).

 

LMPs are important because they target individuals or households to ensure a minimum living standard, avoid poverty and to sustain consumption patterns. Such policies help in reducing the risk and duration of unemployment. They ensure a certain level of social inclusion and mitigate the consequences of the crises but they do not cure the crises (Cazes et al.: 2009, 1). LMPs serve as an intermediary between supply and demand on the labour market. They contribute directly to matching labour demand and labour supply. (Auer et al: 2008, 13-14).

 

Active Labour Market Policies (ALMP)[2] are considered as an active support for Labour market integration. Auer argues that ALMPs are indispensable and serves as an intermediary management tool in supporting flows. Hence it becomes a crucial instrument for labour market governance (Auer et al.: 2005, 14-18).  O’Higgins adds that ALPMs usually mean some form of training or education programme that is used in dealing with youth unemployment. For each country the type of ALMP used largely depends on the type of education and training system in place (O’Higgins 2001: 57). So far, not much research has looked into how ALMPs have been used in dealing with youth unemployment by making a comparative analysis of Ghana and the UK.

 

The objective of this paper is to examine the active labour market policies for Ghana and the UK[3]. It examines how in both countries these policies are used in dealing with youth unemployment. The structure of this essay is as follows. First, I will discuss the labour market situation for Ghana and the UK through analysis of the global employment trends.  Second, I will discuss the main causes of youth unemployment. Third, I will focus on how ALMPs are used in tackling youth unemployment in both countries by examining different training programmes. Forth, I will draw analysis on lessons learnt from the study. Fifth, I will make a conclusion and recommendations based on issues discussed.

 

The challenge I envisage in writing this essay is the fact that these two countries are completely different, the UK which a developed and a European Country where as Ghana is a least developed and an African country. In this respect, I envisage that comparing and securing data might be challenging.

 

2.0. Labour market situation of Ghana and UK

The Ghana labour market is completely different from that of UK. The Ghanaian population summed up to 21 million as at 2007. The total labour force or economically active population was 6.05 million in 1991/ 1992, then 8.21 million in 1998/99. The figure moved to 8.29 million in the year 2000. Records show that the total number of people employed in percentage terms were 84.8 percent in 1991/ 92, but the figure dropped to 73 .6 percent in 2003 (Twerefou et al.: 2007, 6).

 

According to the Ghana Statistical survey, over eighty percent (specifically 80.3 percent in 2000) of the labour force are engaged in self employment in the informal economy. This makes it difficult to track the trend of the Ghanaian labour market since this category is mostly unregistered (Twerefou et al.: 2007, 5).

 

The informal economy is the most dynamic and most flexible sector in the Ghanaian labour market since it absorbs majority of the working population. The agricultural sector and rural activities constitute the greatest aspect of the informal economy. This underscores the crucial role it plays in providing alternative employment opportunities in alleviating the negative consequences of the SAP.  However there was a decline within the informal sector in 1992 when those in the informal sector could not cope with the problems of working informally. And they had to make their way towards the more formal sector. Also due to the fact that some informal operators were categorized under the jobless ranking, which reflected the increase in unemployment rate in 1990 (Twerefou et al.: 2007, 8).

 

Another feature of the Ghanaian labour market is the abundant supply of labour force. Due to fertility rate, improved medical facilities and modern technology, the Ghanaian population has risen. Twerefou et al. explains that the rising share of youth population since the 1990’s and the inefficiency of the labour market to absorb the economically active population, or create enough jobs leads to an oversupply of labour (2007, 8).

 

The Ghanaian labour force doubled between 1984 and 2000 with an annual growth rate of 5.8 percent compared to a real GDP of 4.8 percent.  Interestingly, unemployment seems to be much lower among the educated than the illiterates or people with less education. This is attributed to the fact that individuals with low level of education have low expectations and are more willing to settle for low wage than individuals who have attained high levels of education.  Unfortunately with reference to education, there is a mismatch between the required skills needed in the labour market and the sort of courses offered within the educational institutions (Twerefou et al.: 2007, 16). Aside this, finding a job is difficult in Ghana. Hence individuals tend to compete among themselves and offer to work even for lower wages because of the need to survive to meet basic needs. In such instances, the employers tend to treat the employees as though they are entirely substitutable making them quiet vulnerable. Most employers work for long hours with very little pay. Whiles others are less productive at work.

 

On the formal sector, government workers tend to earn much lower than the private sector. However, working for the government guarantees job security than working for the private sector (Twerefou et al: 2007, 6).This is a major challenge for most Ghanaian workers. Hence workers are caught up in web of either working at the public sector with a lower wages and a guaranteed job security or to work with the private sector for a better salary with much higher job insecurity.

 

The situation in the UK is different, compared to Ghana. From the macroeconomic point of view, the UK labour market has been perceived as remarkably healthy in recent years since it runs in parallel with the best performers in Europe (like Denmark, Ireland and Netherlands). In the UK, employment to population ratio is 69.6 percent.  While the overall labour supply is 58.6 percent (Journal of Economic Perspective: 58). Research done in the field indicates that since 1997, unemployment continues to fall, particularly in 2001 when the country had the lowest unemployment rate ever recorded in the country’s history. Thus from a fall of 4.4 percent in 1994 to 1.2 percent in 2001.In addition to this, inflation remained low whiles real wage growth has been relatively high. This change has been attributed by the introduction of fiscal and monetary policies, and the large fall in commodity prices in the mid 1980’s (S. Nickell and G. Quintini: 2002, 202-203).

 

2.1.      Causes of youth unemployment

Generally youth unemployment has been attributed to three main causes. These are the aggregate demand, youth wages and size of the youth labour force. First, a fall in aggregate demand will consequently affect demand for labour. This in effect will lower the number of youth that are hired for employment. It is cheaper for most firms to fire young people compared to adults. The youth are also less likely to be governed by legislative measures. In most cases, when there is a recession, firms freeze recruitment and this goes a long way to affect the youth. Second, it is noted that youth workers wages are low compared to adult workers; this is also based on the skills of the youth. Third, there is a rapid increase in the population size of youth especially in developing countries. Youth unemployment is more likely to increase if the aggregate labour market is not sufficient to absorb the increasing number of youth population (O’Higgins 2001: 28-49).

 

2.2                 Active Labour Market Policies and youth unemployment Training Programmes

 

The UK has operated a series of work experience and training programmes since 1975. In 1983, there was the introduction of the YTS[4] which was obligatory training program and operated on a larger scale. The program was aimed at increasing the skill levels of the human capital of participants as well as in reducing the wage expectations of participants. The program was characterized by low remuneration to participants of the program and a period of government subsidized work experience mainly with the private employers and the job training.  The effects of the YTS program was that participants had minimum chances in finding work and the benefits of employment prospects were not evenly spread among individuals. The effect of the program was termed as negative (O’Higgins: 2001, 115-116).

 

It has been explained that the UK YTS achieved less than expected since the program failed to define the specific problem it sought to tackle. In addition, it lacked monitoring and targeting, with inadequate involvement of social partners.  More so the YTS programme failed to integrate the educational system with the youth employment policy (O’Higgins: 2001, 119-120).

 

Unfortunately, the Ghanaian ALMPs continue to find itself in this form of mess which the UK found itself in the 1990’s.

 

Since the introduction of the SAP[5] in the 1980’s, there were severe crises on the Ghanaian society. This led to an introduction of economic reform programs. These programs were to increase jobs and improve employability in a constantly changing national labor market through effort of Government, NGO’s[6] and the private sector corporations. In most cases, the labor market policies that are introduced in Ghana are “active” policies. Much emphasis is placed on macro and micro enterprises and employment opportunities mostly for women During the 1980s, in other to reduce the social cost of SAP, much emphasize was placed on labor intensive infrastructural projects, such as hand –dug wells, sanitation projects and labor intensive feeder roads projects. These projects directly generated employment programs by creating 20, 000 person- work years of employment during the five year implementation period ( Twerefou et al.: 2007, 57-58) .

 

Despite this, youth unemployment continues to accelerate within the country. Statistics from the Labour Department of Ghana indicates that close to three million job seekers were registered between 1994 and 1999. Of this number only 59, 000 people obtained jobs from about 66, 0000 vacancies, this implied that a greater number of those who were looking for jobs at the time did not obtain job.

 

Although there has been attempt to improve the situation, one basic challenge has been inadequate funding for youth employment programs.  Twerefou et al. indicates that, over the last two decades, there has been low levels of support to the Technical and vocational education and training.  Compared to school training programs, active labour market policies receive less funding (2007, 58). Considering the fact that such policies require long term investment plan and with the frequent changes made in government. Thus the changes made in government tend to affect the implementation of these policies made within the labour market. This is because these politicians mostly aspire to retain office. As a result, they focus more on policies that would help them reap short term benefits (within their 4 years of rule to be elected). This has been another challenge in the Ghanaian labour market.

 

In other to correct this unfortunate incidence, in 2003 a total of 18.7 billion Ghanaian cedis was allotted by the government from the Education Trust Fund in other to support skills and training in vocational institutions. More so, in 2003, about 11.2 billion cedis was approved under the Skills Training and Employment placement program which was to provide training and support the unemployed youth registered in 2001/ 02.  Most of these formal educational or training programs have very little impact in reducing the youth unemployment because of the rigid nature of the system. The formal training systems determines the overproduction of skills for which demand on the labour sector market is insignificant, coupled with the low level of skilled and qualified trainees in the sector (Twerefou et al.: 2008, 60).

 

Other non formal training programs mostly occur outside the government institutions and in the private sector.  It has been explained that the non formal training is more popular because of its cost effectiveness, accessibility and mostly target an identifiable group of people. It is mostly short term, demand driven, flexible and well organized. For instance it is estimated that by 2003, the NBSSI[7], an institution involved in entrepreneurship development trained 10, 738 people (Twerefou et al: 2008, 60-62).

 

Other informal training programs mostly takes place within the community and in an apprenticeship manner such as carpentry, masonry, tailoring and dress making blacksmithing, mechanical, electronics, painting / spraying among many others.  One notable feature of the informal training is the absence of uniformity in the duration of training (Twerefou, 2007: 62). On average, an apprenticeship last for two and a half years. There is not much dynamic or technical knowledge and motivation under these informal training programs. Baah- Nuakoh points out that the level of technical knowledge within the informal economy is limited to what is passed on from the master to apprentice through repeated exercise. These apprentices as well as their masters continue to use very outmoded tools with low levels of development.  Baah- Nuakoh stresses that trainees outside the informal sector are less likely to be innovative and dynamic, as compared to their counterparts in the formal sector (Twerefou et al.: 2007: 62).

 

Despite these limitations, Twerefou et al state that the informal apprenticeship system of Ghana contributes significantly to improving the skills of the labour force. To this effect, in 2005, the Ministry of Trade and Industry in collaboration with the Ministry of Education and the MMYE[8] provided a comprehensive job practical training for the youth labour force in industrial education with the objective of sharpening the skills and enhancing their productivity levels.

In the proceeding session, we will make a comparison of one specific active labour market policies that focus on youth unemployment. We will begin to discuss Skills training employment placement programme for Ghana then follow it up with the New deal Package for UK.

 

2.2.1    Skill Training and Employment Placement (STEP) Programme in Ghana

Specifically, in 2003 the government initiated a youth employment programme that focuses on vocational training and support to low skilled unemployed youth to either find waged employment or become self –employed. Training was delivered by both public and private institutions. Other implementing partners include the government training institutions (such as NVTI[9], ICCES[10], technical intuitions) private providers (including VOTEC[11] institutions, NGOs, religious VOTEC institutions, among many others) (Twerefou et al.: 2007, 63).

 

On its achievement, the STEP offered advanced programmes in garment factory supervisors for a period of 12 weeks, industrial sewing operators and cutters in the garment industry, both within a period of 8 weeks.

 

In all, a total of 27, 500 youth in the unemployment register benefited from the STEP program with an amount of 6 billion cedis of macro loans disbursed to graduate of the programme to establish their own small scale enterprises. It has been indicated by the government that the program would be decentralized in future in other to benefit the national population (Twerefou: 2008, 64 -63).

 

A recent survey undertaken by Preddey, shows the challenges in implementing the STEP programme. One main challenge has been the multiple nature of implementing partners, which makes it difficult to track the loopholes and inefficiencies in the programme (Preddey, 2005, 39). Some of the basic problems that have been outlined include problem of finance, governance and management. There was a perceived mismatch between the skills required from STEP programmes and the skills actually needed for gainful employment in the labour market. Moreover, the youth who undergo such training programs are not gainfully placed into institutions for employment. This is because employment was not the concern of the training providers.  Furthermore, there is difficulty to information on the programs, lack of access to microcredit and lack of monitoring mechanisms for the STEP program( Preddey: 2005, 38 – 43).

 

There is currently no systematic monitoring or evaluative mechanism for these programs implemented in the Ghanaian economy. Twerefou et al. explains that this is the crucial aspect of the Ghanaian employment framework because the sector has been neglected by policy makers who lack long term strategic objectives and implementation mechanisms (2007, 68). The current set of monitoring indicators that is identified by the GPRS gives very little attention to employment programs (Heintz: 2004, 59-60).

 

2.2.2.   “The New Deal Package” of the UK

Alternatively, the UK has gone through a long process of transition with implementations and adaptations. In January 1998 the UK government introduced a pilot programme called the “New Deal Package”. This was launched nationwide in April 1998. The program targeted youth between the ages of 18- 24 years and are in the unemployment register for at least six months. The selected category was to enter into initial gateway program for a period of four months. Within this period, they received vocational training, counseling and guidance. After this, there are five available options for the trainees without unsubsidized employment involving work placement, education, and self employment. The five options includes (1) accepting job with an employer, (2)accepting job with a volunteer sector organization, (3)entering into full time basic education or training, (4)working with an Environmental task force (5) entering into subsidized self employment . Young people who fail to take up one of these available options are most likely to loose their entitlement to unemployment and or social security benefits (O’Higgins: 2002, 110).

 

Consequently, we can see how different the UK ALMP is different from the Ghana ALMP. Whiles the one in Ghana places much emphasize on training the youth, it does not bother much about placement. Hence the unemployed youth after receiving training from these programs are left to face the challenge of absorbing themselves into the demand sector or go into self employment which is mostly a disaster.

 

3.0.     Lessons learnt

Reflecting on the comparison made, it is important to make deductive analysis and draw lessons from it.  With respect to Ghana, the main problem that has been encountered is the issue of governance, implementation and targeting. Thus the country fails to separate its politics from economics and this has a major impact on unemployment and policies in the labour market. More so, because of the large number of implementation partners, it made it difficult to track the loopholes in the trainee programmes that were organized.

 

Moreover, the educational system in Ghana does not help with integrating the youth into the employment institutions since the skill needed by employers is not what is offered in the schools.

 

Furthermore, growing number of the population and for that matter the youth in Ghana as a result of technology and enhanced modern technology, contributes labour supply being much greater than demand. There is lack of commitment on implementing partners. More emphasis is also placed on training the youth than in creating new jobs or putting them at work.

 

On the contrary, UK decreased its youth unemployment ever recorded in history as a result of monetary and fiscal policies that were introduced. The good thing about UK labour market policies is that is focused and in tune in such a way that gives the unemployed not so much choice than to choice any one of the available options or loose their social security benefits.

 

Here it is important to point out, though UK has been able to reduce its level of youth unemployment, O’Higgins argues that it is still too early to state that the UK new deal has been successful. This statement is made on the basis that though the system has been able to achieve its aim in getting people off the unemployment register, this have been through obligatory sanctions. He further says that it is still ambiguous if these programs will lead to any long term improvement.  That is participants being able to retain their chosen jobs and not drop out after a period of time. More is needed to proof to us that these systems are sustainable and not just a system that revolves around the old system which failed in previous years.

 

Looking back, I had envisaged the challenge at the beginning of this paper that gathering data for both countries would have been a major challenge. In the process of gathering secondary data I realized that much has been said on the active labour market policies for each country though none makes a comparative analysis for both countries. In the case of Ghana, it was ethically difficult to just accept some of the figures considering the fact that data was from the Ghana Statistically Service. It is difficult to accept the data provided from the source compared with trend in labour market. That notwithstanding, I believe it was worth the effort. The area of study is increasingly interesting subject and so is examining the active labour market policies in both countries.

 

3.2.     Conclusion and Recommendations

 

In conclusion, it can be said that dealing with active labour market policies and youth unemployment is country specific and it is always important to define the contextual problems or challenges and enact appropriate policies that tackle the problems. O’Higgins explains that the most appropriate ALPMs takes into account the economic context and focus on three basic element such as the state of the economy, the sectors in the economy that have the potential for development and the target group( 2001, 163). In the case of Ghana, some recommended strategies may be in enhancing access to finance (soft loans), meeting labour demand with supply; ensuring that programs thought within educational system is targeted at integrating labour demand with supply. Furthermore, there is need for commitment on the part of implementing partners. Ensure creation of quality jobs that increases the efficiency of unemployed youth in the informal sector.

 

In 2006, Berg J. et al made some recommendations to meeting unemployment challenges. They explain that it is important to improve financial environment for domestic market, promote export specialization in higher value added of goods, address imbalance and support creation of quality employment in service sector and promote efficiency in labour market institutions.  There is a need for a proactive government that secures coordination between employment policies and programmes. Also there it is important to ensure coherence among different areas of government. All these can be done through efficient functioning of social dialogue between government, workers and employers (2006, 201 – 216) Chambers et al. also adds such policies should focus on capacity building, quality control, need for external evaluation, advocacy, branding, fund raising, partnership building, monitoring, among many others (Chambers et al.(NoDo). 13-21).

 

References

 

Auer P., U. Efendioglu and J. Leschke (eds) (2008) “Active Labour Market Policies around the World” Geneva: ILO 13 – 18.

 

Baah-Nuakoh, A. (2003) Environment, Informal Sector and Factor Markets in Studies on the Ghanaian Economy Vol. 2: Woeli Publishing Services, Accra

 

Berg, J., C. Ernst and P. Auer (eds) (2006) “Meeting the Employment Challenge”, ILO Geneva.

 

Cazes, S., S Verick and Heuer C. (eds) (2009) “ Labour Market Policies in times of Crises”- Employment Working Paper No 35.- International Labour Office, Economic and Labour Market Analysis Department-ILO- Geneva, 1-39

 

Chambers, R and A. Lake (NoDo): “Youth Employment International: Bridging the gap between youth Unemployment and Self Employment for Disadvantaged Youth”- Skills Working Paper No 3, ILO – Geneva, 1-25

 

Dewan, S. and P. Peek (2007) Beyond the Employment / Unemployment Dichotomy: Measuring the Quality of Employment in Low Income Countries- Working Paper No 83, November, ILO, Geneva , 1-15

 

Heintz, J. (2004) Elements of Employment Framework for Poverty Reduction in Ghana, 59-60

 

Martin, J.P. (2000) “What Works Among Active Labour Market Policies: Evidence from OECD Countries’ Experiences” in OECD Economic Studies No. 3, 80- 113

 

Nickell, S. (1997) “Unemployment and Labor Market Rigidities: Europe versus North America” in Journal of Economic Perspective Vol. 11 No 3, 55 – 74

 

Nickell S. and G. Quintini (2002) “The Recent Performance of UK Labour Market” in Oxford Review of Economic Policy, Vol. 18, No 2, 202 – 220

 

O’Higgins, N. (2001) Youth Unemployment and Employment Policy, a Global Perspective, ILO- Geneva, 1-169

 

Preddey, G.F., (2005) “Skills Training and Employment Placement (STEP): The Programme Document and Performance Appraisal, and Proposals for Enhancement” Skills and Employability Department ILO- Ghana Decent Work Pilot Programme.

 

Steedman, H. (2001) “Benchmarking Apprenticeship: UK and Continental Europe Compared “1-43

 

Stevens, M. (1999) “Human Capital Theory and UK vocational Training Policy” in Oxford Review of Economic Policy Vol. 15, No. 1 -Oxford University Press, 16-31

 

 

Twerefou, D.K, F Ebo-Turkson and A.O.Kwadwo (eds.) (2007) “Labour Market Flexibility, Employment and Income Security in Ghana”, Employment Policy Papers – ILO, 1-86


[1] Labour Market Policies

[2] Active Labour Market Policies

[3] United Kingdom

[4] Youth Training Scheme

[5] Structural Adjustment Programmes

[6] Non Governmental Organizations

[7] National Board for Small Scale Industries

[8] Ministry of Manpower Development Youth and Employment

[9] National Vocational Training Institute

[10] Integrated Community Centers for Employable Skills

[11] Vocational and Technical Education

 

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