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(b) Discuss the most appropriate policy measures that should be taken to reduce youth unemployment in China. [15]

HCI 2024

Introduction

Youth unemployment has become a pressing issue in China, particularly following the economic disruptions caused by the COVID-19 pandemic. Despite a shortage of skilled workers in sectors such as electric vehicles (EVs) and scientific innovation, a large number of university graduates remain unemployed. This suggests a mismatch between the skills of recent graduates and the demands of emerging industries. To address this issue, a combination of demand-side and supply-side policy measures can be considered. 

Expansionary demand management policies

One approach to reducing youth unemployment in China is through expansionary demand management policies, such as expansionary fiscal or monetary policies. These policies aim to boost overall economic demand, which in turn leads to higher production and job creation.

The Chinese government could employ expansionary fiscal policy by increasing government spending on infrastructure projects or reducing personal and corporate income taxes. For example, increased government spending on large-scale infrastructure, such as transport or green energy projects, would increase Aggregate Demand (AD). Since consumption (C), investment (I), and government spending (G) are components of AD, an increase in any of these components will shift AD rightward from AD0 to AD1, leading to higher output from Y0 to Y1. As output increases, firms will require more labour to meet the rising demand for goods and services, thereby helping to absorb some of the youth workers who are currently unemployed.

Similarly, reducing income taxes can stimulate consumer spending, while corporate tax cuts can incentivise businesses to invest in capital goods and hire more workers. However, there are limitations to this approach in the case of China. China’s national debt levels have risen significantly in recent years, which may limit the government’s fiscal space to implement large-scale expansionary fiscal measures. Over-reliance on fiscal stimulus could exacerbate the debt burden and crowd out future productive investment.

Note: Students can opt to discuss expansionary monetary policy as an alternative

Supply side policies to re-train workers

Given that the current unemployment problem is more structural than cyclical, supply-side policies that address the mismatch between skills and job vacancies are likely to be more effective in the long term. Structural unemployment occurs when there is a mismatch between the skills of workers and the demands of the labour market. In China, the shortage of skilled workers in emerging "hard tech" sectors such as EVs and scientific innovation points to the need for targeted re-skilling and education reforms.

The government could increase funding for university programs that focus on emerging industries such as EVs, artificial intelligence, and scientific research. By expanding these programs, more youths could be encouraged to pursue degrees in fields that are in demand, reducing the likelihood of structural unemployment in the future. For recent graduates, the government could provide subsidies for re-training programs aimed at equipping them with the relevant skills needed for employment in these sectors. For example, the government could partner with technology firms to offer short-term courses or apprenticeships that help graduates transition into "hard tech" roles.

However, these policies are costly and may take time to materialise. Investment in education and re-skilling often requires several years before tangible results can be seen in the labour market. Moreover, recent graduates may be reluctant to pursue additional training after completing their degrees, as they may view further education as a sunk cost. Convincing young workers to switch fields or undertake re-training will require a concerted effort, possibly through offering financial incentives or guaranteed job placements upon completion of training programs.

Conclusion

To reduce youth unemployment in China, a combination of demand-side and supply-side policies is necessary. Expansionary demand management policies, such as fiscal stimulus, can help stimulate economic activity and create jobs in the short term. However, given China’s high national debt, the government may have limited scope for such measures. In the long term, supply-side policies aimed at re-skilling workers and aligning education with the demands of emerging industries will be crucial in addressing structural unemployment. While these policies take time to implement and may face challenges such as reluctance from recent graduates, they offer a more sustainable solution to reducing youth unemployment and ensuring that China’s labour force is well-prepared for the future economy.