Youth Unemployment in the Developing World Is a Jobs Problem

(Illustration by iStock/mitay20)

“When I was preparing to come to Delhi for a job, everyone in the village laughed and asked how it was possible that my village education would find me a job in a big city,” recalled a 22-year-old Tabassum Naaz in 2010. They probably assumed her credentials would be too humble to be of use. Yet like thousands of others across India, from the 1990s onward, Tabassum did find a job (in her case, at Aegis business process outsourcing in Gurgaon, on the outskirts of Delhi). Her studies—at a little-known college in Bihar, one of the lowest-income states in India—were sufficient, because, to put it simply, there were employers seeking workers with her skills.

Many actors in international development today are rightly worried about youth unemployment; despite success stories like Tabassum’s, youth unemployment remains stubbornly high across developing countries: in 2022, it stood at 24.8 percent in the Middle East and North Africa (MENA), 20.5 percent in Latin America, 14.9 percent in Asia and the Pacific, and 12.7 percent in Sub-Saharan Africa. However, initiatives in this space tend to focus on the labor supply side, supporting skills development and education. The World Bank, for example, invested around $1 billion per year between 2002 and 2012 on skills training programs focused on youth. A search for “youth unemployment” in the World Economic Forum website reveals an overwhelming focus on skills development: A 2010 report lists “quality and relevance of education” as the first cause of youth unemployment, a 2016 article calls for training or job readiness programs to address youth unemployment in Latin America, and a 2020 article suggests teaching English, digital, and soft skills to solve the challenge in the MENA region. Other examples abound: Mastercard Foundation, which aims to address youth unemployment in Africa by creating 30 million jobs, identifies “improving the quality of education and vocational training” and “leveraging technology to connect employers and job seekers” as its first two strategies to enable job creation. A review of 75 youth employment programs in the MENA region centered on technical skills training, followed by soft skills training.

Tabassum’s story suggests a different approach. She represents a phenomenon in India that has been substantiated by multiple research studies: employment opportunities driving educational attainment. In this case, education enrollment (especially in English-language schools) actually increased near new IT centers. In other words, rather than education producing good jobs, it was the emergence of “good” jobs, that require certain skills, which incentivized parents to invest in their children’s education. But if a supply of jobs drives an increase in educational attainment, rather than the reverse, then it suggests a shift in orientation for the development community. Addressing youth unemployment by equipping young people with better skills is surely worthwhile in itself, but if not coupled with efforts to create new jobs, skill development initiatives, alone, will not solve the unemployment challenge.

A Jobs Problem

In developing countries, the basic issue is that there are simply not enough jobs for the youth entering the labor market every year, a mismatch exacerbated by high rates of population growth in most developing regions. McKinsey estimates that Africa alone will add 796 million people to the global labor force between 2020 and 2050, a net increase of close to 27 million people per year. For Africa, this will mean twice as many people added to the labor force as in the previous 30 years. Currently, 10-12 million African youth join the labor force every year, for whom there are only 3 million formal jobs available, which means 7-9 million new African youth lack access to a stable source of income, equivalent to the population of New York City. By the same token, India will add 183 million people to the global labor force in that period (close to 6 million per year), and estimates suggest that there will be around 45 million missing jobs in India by 2030.

Education is not the silver bullet. As the MENA region illustrates, improved educational attainment does not necessarily lead to improved labor market outcomes: across the region, decades of rising educational attainment have not been matched by increases in labor force participation. For example, an expansion of tertiary education in Tunisia led to nearly 70 percent unemployment rates among university graduates in 2013. The World Bank even dubbed this phenomenon the “MENA paradox,” highlighting a reduction in public sector jobs–mostly held by educated workers—which has not been offset by a sufficient increase in private sector jobs.

Years of evaluations have provided substantial insight on the impact of supply-side interventions, and unfortunately, the evidence is underwhelming. A 2017 literature review found that for every 100 people offered vocational training, fewer than three found an “additional” job (one they would not have otherwise found if they had not received the training). Additionally, these programs come at a very high cost: between approximately $17 thousand and $60 thousand per additional person employed. The same analysis found that out of ten programs helping match candidates to jobs, only one had a significant impact on employment (an increase in employment of 2.4 percentage points over three years).

However, these interventions are more likely to be successful when implemented by the private sector or coupled with demand-side initiatives, such as training talent for a nascent industry. As the paper concludes: “One set of alternative policies is to move away from interventions on the labor supply side and focus more on policies to help firms overcome the obstacles they face in innovating, growing, and creating more jobs.” For instance, interventions aimed at unlocking labor demand might spur entry of new firms—by catalyzing pioneer firms or attracting foreign direct investment in new industries—or accelerate the productivity and growth of existing firms by limiting regulatory burdens or supporting them on management practices and export facilitation.

Toward a Demand-Side Approach

We recently argued that development philanthropists should focus on the most powerful route to prosperity: productive employment in a thriving economy. One concrete way in which the development and philanthropic community can do so is to put job creation at the heart of their youth unemployment programs and ensuring that supply-side and demand-side interventions work in tandem. Some philanthropies are already doing so, albeit with a focus on the United States’ jobs challenge. The Kauffman Foundation, for example, has a stated focus on supporting the start and growth of new businesses that can create jobs, and has made investments to improve job creation policy. The Aspen Institute’s Economic Opportunities Program is another example, which is supporting thinking and collaborative initiatives around “good” job creation. Dating back many years, various other large foundations, such as Ford Foundation and Rockefeller Foundation, have endorsed and funded job creation initiatives.

Philanthropies working in global development should extend this job creation focus from the United States to their developing country portfolios. Again, the cupboard isn’t barren; there are examples to learn from and emulate. Big Win Philanthropy has funded initiatives around job creation for youth, in countries like Ethiopia and Côte d’Ivoire. Funders like the Rockefeller Foundation have pursued job creation programs in the past, in promising sectors such as business process outsourcing. This resonates with us in particular, as our own organization, Growth Teams, has facilitated the development of an outsourcing sector that will create thousands of good jobs in Rwanda.

While there is no easy answer for how to create more jobs in developing countries, various examples illustrate what progress on this front can do for countries as a whole. Singapore’s government under Lee Kuan Yew, for example, set out to build a modern economy by attracting labor-intensive foreign manufacturing that would create low-skilled jobs first, then shifting to more skill-intensive manufacturing and finally playing a leading role in the global knowledge economy. At all stages, the ability to put education at the service of economic growth by matching skills supply and demand was central to the country’s successful economic transformation.

Costa Rica offers another instructive example. By targeting foreign direct investment in services, the country was able to leverage growth in key parts of its economy to increase labor productivity and create new job opportunities for its population. Job creation not only happened directly through the multinational corporations setting foot in the country but also through local suppliers that grew after plugging into global value chains.

Addressing youth unemployment requires a balanced approach that recognizes the interplay between supply and demand in the labor market. These examples all underscore the importance of job creation in addressing this challenge. While supply-side interventions that focus on skills development are crucial, they must be complemented by demand-side initiatives that support the creation of jobs in which these skills can be used productively. Governments, bilateral and multilateral donor agencies, and philanthropists should strike a more even balance between supply-side and demand-side interventions. In doing so, they will enable more comprehensive and sustainable solutions to youth unemployment, thereby empowering young workers and fostering economic prosperity for future generations.

Read more stories by Kartik Akileswaran, Jonathan Mazumdar & Angela Perez Albertos.