Higher education graduates in East Asia: Too few? Too many?

The number of people with higher education credentials has never been higher in East Asia and the Pacific (EAP), according to a new World Bank website on higher education. Over the past two decades, the number of university graduates in the region has increased significantly. In countries like Thailand, Indonesia, and China, the percent of tertiary level graduates in the workforce is now about 20%, double from what it was 15 to 20 years ago.

At the same time, employers fret that they are not getting the skilled workers they need to compete in a global economy. Investment climate assessments report that 20% of employers feel that skills availabilities are a major impediment to business, as much as, if not more than, meeting onerous regulations.

Such employer frustrations must puzzle the many higher education graduates report having trouble getting jobs. And some who get jobs are the first to lose them during economic downturns, as two of my nephews living on either side of the Pacific Ocean recently found out. Unemployment rates among tertiary graduates are as high as 10% in countries like Indonesia and The Philippines. As an unemployed 21-year old newly-minted Vietnamese BA groused in a recent consultation: “I expected to find a job easily since I have a degree in computers. But, after going to multiple interviews, I found out that firms are hesitant to hire me because despite my degree, they have to train me to meet their work requirements. It is easier for these firms to hire a graduate with a couple of years of experience instead.”

What’s going on? Getting this puzzle sorted out may not only determine whether low-income countries (LICs) can become middle-income countries (MICs) and MICs, high-income countries (HICs). They may also affect social stability as young people’s expectations are at an all-time high. It is thus not surprising that governments are considering investing a great deal of their national wealth on expanding and improving their higher education systems.

I would like to know what readers think about this puzzle: lots of graduates, not enough skilled workers, high rates of graduate unemployment, frustration all around despite high rates of economic growth. Let me advance just a few hypotheses (conveniently labeled as “H” to give our discussion a veneer of academic respectability) to get the discussion going:

H1: Despite the higher number of graduates, enrollment rates in most EAP countries are actually low when compared to countries with similar income levels and growth rates. Enrollment rates are 24% in EAP, much lower than regions such as Latin America and the Caribbean, where it is 35%, and Europe and Central Asia where it is 55%. So, governments should spend more on access because, even without university degrees, having some years of tertiary education, including in polytechnics or community colleges, pays off.

H2: The high unemployment rate of graduates is due, not to their oversupply, but to the fact that too much of tertiary education in EAP is of low quality and has irrelevant curricula. Young people are learning the wrong things. For example, employers are seeking ‘softer skills’ such as team-building and communications and technical skills such as computer familiarity. This would argue that increased investment should focus on quality rather than just quantity.

H3: High unemployment may be due to the unrealistic expectations of graduates that they are entitled to ‘white collar’ jobs in offices and that ensure lifetime security. In contrast, in the US, the average college graduate will have had 7 jobs in the first two years after graduation, and many of them in areas that are unrelated to their field of study or in what are seemingly menial jobs but which teach invaluable life skills. Societies need to prepare the expectations of young people about labor market realities and about the need to get good basic experience early in their careers.

Do you think these hypotheses are valid? Do you have any that you’d like to advance yourself?
(Source: Emmanuel Jimenez)

Far from home in China: conversations with migrant workers searching for opportunities in urban centers

While traveling through China recently, I had an opportunity to visit the Shanghai Urban Environment project in the emergent suburban district of Qingpu and spoke to a number of workers responsible for the implementation and completion of the project.
As with many infrastructure and urban development projects in China, the speed and magnitude can be astonishing, with hundreds of employees working around the clock to ensure timely completion. Work on the facility runs 24 hours a day, 7 days a week with construction workers from all over China contracted to work and live onsite until its completion in 2011. Once finished, it will improve water service, coverage, and waste water management in the region which will be essential for sustaining the increasing population and living standards.
I was curious about the lives of the migrant workers who often move thousands of kilometers away from their homes to urban centers such as Shanghai in search of employment opportunities. China is experiencing unprecedented urbanization with an estimated 1.5 million people that move from rural areas to urban ones each month and an urban population rate that has increased from 17.9% in 1978 to 46% in 2008 and is expected to continue increasing to 60% by 2020. Large urban centers are seen as beacons of opportunity as the average income levels in urban areas were  3.28 times higher than rural areas in 2006 and is especially evident when comparing relatively prosperous Shanghai where GDP per capita levels are almost 10 times higher than lesser developed provinces such as Guizhou.

Huge machinery is used to dig through the earth in order to install new water pipes and to retrofit existing ones.

I had very insightful conversations with the manager of labor, Chen Aixing, quality control supervisor Jiang Peng, and laborer He Jiming among many others. Their joint inspiration for working on the project was an interest in urban development and to make more money in order to uphold familial responsibilities and aspire to more prosperous futures. To them, moving to Shanghai offered the greatest opportunities for attaining these goals.
The elder Mr. Chen and Mr. He were very satisfied with their work; they said that conditions had improved over the years with the addition of enhanced safety equipment, higher pay, better food, and more opportunities due to economic growth. They also note that workers are entitled to performance bonuses and have free food and housing onsite while they are working.
The manager, Mr. Chen, only attained a 5th grade education and became a migrant worker at 16. He was extremely optimistic and said that his standard of living has increased immensely since leaving his home of Liyang in neighboring Jiangsu province in the 1980’s. I noticed while chatting and drinking tea with him in his office that it was air-conditioned, had a computer, and he had the latest model Samsung cell phone; unimaginable luxuries in his youth. He beamed with pride as he told me that his son had managed to become an engineering student at Shanghai’s prestigious  Science and Technology University and his daughter aspires to be an English teacher. Over the years, he has been able to save enough to build a beautiful home in his hometown and is looking forward to a retirement with a pension. “As long as my children are successful and my parents are taken care of, I can be at peace,” Chen concluded.
Mr. Jiang, the quality control supervisor was young and well educated with a debonair aura.  He studied accounting but grew tired of crunching numbers at a desk. According to Jiang, things have become more equal since he sees migrant workers willing to work harder than native Shanghai residents, creating a more equal urban environment. Jiang uses the money he earns for himself and he’s not sure if he will stay in the future as opportunities in his native town of Jiaohe in Jilin province are increasing. He noted that you must physically and mentally prepare yourself to work extremely hard. He plans on saving money, marrying, and then having children in the near future. “I believe people, irrespective of where they are from, share the same hopes and dreams.”

Employees take a break from their day to thank and toast the God of Earth for blessing their work.

Mr. He is a laborer from central China near Chongqing and said that workers are increasingly drawn to better food and pay. He says he works on the project to earn as much as possible for his children’s education. He was heartened to have a niece that was the first university graduate in the family, which provides an inspiration for his children to work hard and persevere in school.  Mr. He feels guilty being away from his wife as she has to take care of the children, which requires waking up early and going to bed late to accompany them in their coursework and extracurricular activities. “My motto in life is to work diligently and be a good person. We’re all in it together and our assignment is a joint effort.”
I was touched by the strength, openness, and thoughtfulness of their responses while chatting with them about their lives. In the face of strenuous challenges --working seven days a week, only going home once a year, and living 12 to a room-- the interviewees were proud and enthusiastic about the project and their contributions. Everyone exhibited such an incredibly strong work ethic and sense of personal responsibility, a depth difficult to completely grasp through an outsider’s lens.
I walked away stunned, refreshed, and inspired to blaze my own trail with more gusto.
(Source: Joe Qian)

Why has developing East Asia led the global economic recovery?

Only a few expected in late 2008 that East Asia would lead the world economy out of the crisis. Skeptics pointed to the continued dependence of the region on exports to advanced economies. And skeptics and believers alike were predicting that all countries in the region would rethink their growth models to focus more on domestic demand rather than exports and investment. What a difference a year and a half makes. East Asia has recovered from the economic and financial crisis, with output, exports and employment mostly at pre-crisis levels. Leading the global economy, real GDP in developing East Asia is set to grow 8.7 percent in 2010, up from 7 percent in 2009, according to the World Bank’s East Asia and Pacific Update report launched today (and of which I’m the lead author, full disclosure here). The projected growth rate for 2010 is almost a percentage point higher than our own forecast made six months ago, and is higher than the 8.5 percent expansion recorded in 2008.
Firstly and most importantly, the recovery has been influenced by China. The Chinese authorities swiftly implemented a large monetary and fiscal stimulus starting in the last quarter of 2008 (through 2010) that exceeded the one introduced after the 1997-98 Asian financial crisis. The package helped boost government-led investment by nearly 6 percent of GDP in 2009, accounting for the bulk of the 8.7 percent growth in real GDP. The surge in investment, in turn, led to a sharp increase in imports for domestic use, notably from East Asia. This surge was most pronounced in the first half of 2009, when import demand among the advanced economies was contracting fast. 
Secondly, the other countries in developing East Asia also implemented timely fiscal stimulus packages, coupled with prompt and effective monetary easing. Even the low-income countries, notably Lao PDR and Cambodia, injected a discretionary fiscal stimulus of about 3 percent of GDP each in 2009, helping cushion the impact of the crisis on economic activity.
Thirdly, the countries of developing East Asia entered the crisis in fundamentally solid economic health. Heeding the lessons of the 1997-98 Asian financial crisis, countries had reduced government debt and fiscal deficits, cut external debt and ensured robust balance of payments positions, boosted foreign exchange reserves, and substantially improved financial supervision. The region’s well-capitalized banks helped substantially limit financial contagion and the transmission of forces of the global recession and continued to lend through the crisis, albeit at a slower pace in most countries.  
Fourthly, and this is a factor common for most developing regions, is the rebound in advanced economies. Developed countries joined the rebound in the third quarter of 2009, and their contribution to regional exports began to outpace the contribution from China.  
Last but not least, there is the importance of remittances. Unlike other developing regions and in contrast to most projections from early 2009 that suggested large contractions, remittances to developing East Asia continued growing through the crisis. In the Philippines, for example, remittances grew about 6 percent in dollar terms in 2009, while forecasters earlier in the year worried about a contraction of 10-20 percent. And such better-than-projected performance appears to have been observed in other countries heavily dependent on remittances in the region, including many of the Pacific islands.
(Source: Ivailo Izvorski)

Economic Performance

The U.S. has lost 5.7 million jobs in the past 16 months. The six months between October 2008 and March 2009 saw the U.S. economy contract more rapidly than during any other half-year since 1958. In April the unemployment rate reached a 25-year peak and it is forecast to rise through at least the end of this year. In short, the U.S. economy today is mired in a deep recession.
Even worse, the current recession follows an anemic recovery. The business cycle that ran from 2001 to the end of 2007 saw essentially every economic indicator except corporate profits turn in its weakest performance since World War II. Most damaging to working and middle-class households was that the percentage of the adults employed did not grow at all even during the expansion phase of the cycle (from November 2001 to December 2007) - the first time this has ever happened.
Median household income has never recovered from the recession of 2001. It ended 2007 at a lower level than where it stood in 2000. Given that median household income invariably falls during recessions and recovers only slowly as economic growth returns, it is all but guaranteed that median household income will see no growth at all during the current decade.
Even strong corporate profits, the only area of comparative strength in the last economic cycle, may prove to have been illusory. The share of corporate profits accounted for by the financial sector rose dramatically in the 2000s - from 25% in the business cycle of the 1990s to 37% in the 2000s. We now know that these financial profits were largely the result of investments whose value will be progressively written down. In short, the economic strategy of recent years -- based on deregulation, tax cuts for the most well-off, and concerted efforts to weaken the bargaining power of American workers -- clearly led to dismal economic performance across-the-board.
For the moment it seems clear that economic performance in general and the labor market in particular will get substantially worse before they get better. As the country looks for any sign of encouraging economic news, it's important to not set standards too low. As of May 2009, 16 months into the recession, almost 8 million jobs will be needed just to return the country to pre-recession unemployment rates, and this number of required jobs grows every month that the U.S. economy fails to create the 125,000 jobs needed just to keep pace with population growth.
The 4.7% unemployment rate that prevailed in December 2007 was already too high to spur across-the-board wage increases like those seen in the 1990s. In short, returning to the status quo that prevailed before the start of the current recession is far too modest a goal - this country needs a fundamentally different policy strategy to generate acceptable economic performance in coming years.
In their 2008 report, A Feeble Recovery, Josh Bivens and John Irons examine why most Americans failed to benefit from the most recent recovery. Another EPI report by Josh Bivens, Upside surprise in consumption spending doesn't stem sharp decline in economic growth, discusses the historically weak GDP numbers of late. In addition, EPI every month provides an exhaustive look at the unemployment data, examining not just the total jobs lost, but which sectors of the population are feeling the most pain. The May jobs picture can be found here.
(Source: Economic Policy Institute)