Los Angeles Times
Wall Street Journal
as Employer of Last Resort: A Tentative Proposal for Solving Youth
Unemployment in Ethiopia
Desta, Asayehgn, Ph.D. Sarlo
Distinguished Professor of Sustainable Economic Development, Barowsky,
School of Business, Dominican University of California
having a favorable Gross Domestic Product (GDP) for more than fifteen
years, Ethiopia is currently faced with exceptional challenging youth
unemployment. The youth unemployment and idleness in Ethiopia has
contributed to massive social unrest in several Ethiopian urban areas. To calm down the massive instability in the country that were precipitated
mainly by the unemployed youth, the Ethiopian government has allocated
0.72 percent of its GDP to resolve the youth unemployment in the country.
Realizing that the actions taken by the government will not have a
substantial impact, this study has proposed that using the Employer of
Last Resort (ELR) economic model in collaboration with Ethiopia’s
Technical, Vocational Education and Technical (TVET) institutions, so that
the ELR could be used as a road map to create pathways for a smooth
transition between classrooms and office or factory jobs. To make the ELR
proposal a reality, the study further suggests that the teachers and the
curricular of the TVET institution need to be overhauled and reoriented.
Local and municipal governments must administer the ELR program in the
TVET institutions because they are most familiar with the economic needs
of their communities. Based on the assumption that $2.00 USD per day would
fulfill basic needs and meets
the internationally set poverty line for developing countries, the budget
for the 23 million ELR voluntary job seekers was estimated to cost $11.29
billion USD or 18.35 percent (i.e., 11.29/61.54) of Ethiopia’s GDP. Some
policy makers in Ethiopia might argue that Ethiopia can’t spend 18
percent of its GDP to resolve the youth unemployment. The argument on the
other hand rests that if the Ethiopian government genuinely accepts that
employment is a basic right, then, it would be a rational choice to use
domestic birr that doesn’t flare up inflation rather than waiting for
the inevitable spark of uncontrivable social instability or depend on foreign dominated loans to mitigate youth unemployment in
Unemployment, employer of last resort, multiplier, price stability, TVET
In general, the economic health of
a nation can be gauged using gross domestic product (GDP), rate of
inflation and unemployment, and the current account balance. Based on
these indicators, except the slowed down of GDP to 8 percent in 2015-16
due to the Il Nino drought
effect of 2014-15, Ethiopia has been witnessing a favorable macroeconomic
environment. Its GDP has grown at a double-digit growth rate for the last
decade and half. Despite the country being negatively affected by drought,
its recent rate of inflation has been kept below the single digit level.
However, Ethiopia’s exports level in 2016 had recorded the worst
performance in the last decade. In addition to an increase in its external
indebtedness, Ethiopia’s current account balance has been in a very
distressful deficit situation.
Yet despite economic growth and a
significant increase in educational attainment, Ethiopia had not been
revealing any significant impact on youth employment (i.e., ages 15-24).
As estimated by the Ethiopian Government, since 2013, more than 50 percent
of the Ethiopian youth with primary, secondary, and higher education have
been actively looking for jobs (Andualem Sisay, 2013). Due to rural push
and urban pull factors, and skills mismatch, youth unemployment in
Ethiopia has been very visible in urban centers. Unemployment causes an
erosion of skills. Employers regard hiring an applicant who has been
jobless for a long period as risk venture. In addition, as stated by
Tcherneva (2011a), a person who is unemployed could put another one out of
work due to the loss of purchasing power.
Therefore, if the youth
unemployment that has been mushrooming in Ethiopia is not addressed
properly and systematic strategically designs are not put in place to
prepare the next generation for successful future economic opportunities,
from talent-centric perspective, it is possible that youth unemployment
can contribute to the underutilization and waste of human capital. As
rightly put by Wary (2007), with a high rate of depreciation of idle human
capital, “the productivity of workers falls quickly when they are
unemployed, and beyond some point they would become unemployable (due, for
example, to loss of the ‘work habit’ or due to crime and
a socio-political perspective point of view, youth unemployment would
spark uncontrivable social instability and political upheavals. In
addition, from a psychological point of view, lingering of youth
unemployment could be entrenched and the affected could face resilient
causes of depression, violence, low level of self-esteem, and poor social
adaptation (Kabaklarli, E, Er. H.P, and Bulus, A. 2011).
As persuasively put by the
Manpower Group (2012), youth unemployment “extends beyond the impact of
temporary labor market fluctuations. The experience leaves a permanent
imprint on both individual life outcomes and national development
trajectories.” Because “affected young people start out with weaker
early career credentials, and show lower confidence, resilience in dealing
with labor market opportunities and may lack the ability to thrive in a
dynamic and demanding labor market over the course of their working
lives” (Manpower Group, 2012). That
is, “Without opportunities for young people to earn a living,
intergenerational cycles of poverty will persist, further affecting
societies already made vulnerable by HIV/AIDS, food insecurity, and
violence” (Guarcello, L. and Rosati, F. March 2007).
admitted by the Ethiopian Government, the massive rate of youth
unemployment has sprouted social unrest in some of the regions of the
country. Thereby, to challenge the outlandish social unrest, the Federal
Democratic Republic of Ethiopia has already allocated 0.79 percent (i.e.,
10 billion / 1271 billion birr) of
its Gross Domestic Product (GDP) to
tackle the problem faced by hardcore job seekers. More specifically, the
federal government has attempted to target urban safety nets and
tentatively allocated financial support to unemployed youth to enable
their job search; and tailored the use of information communication and
technology (ICT) to provide information on job vacancies throughout the
city and reduce the cost of job search (World Bank, 2016).
The purpose of this paper is to
investigate the conceptual and theoretical framework of the economic
model, known as “Employer of Last Resort” (ELR) and verify the
possibility of integrating with environmentally sustainable development to
solve involuntary youth unemployment in Ethiopia. The study resonates with
Harvey’s (2000) argument that employment is a human right. In addition,
the ELR economic model is premised on the assumption that if the
government funds environmentally related projects and employs voluntary
youth job seekers at base wage rate, both cyclical and structural
unemployment would be mitigated without the precipitation of inflationary
pressure on the economy.
The paper proceeds as follows. In
the second portion, the study attempts to provide a review of the ELR
theoretical and empirical work and assesses the impact of the unemployed
youth who are ready, willing, and able to work at a minimum wage level in
public programs and their contribution to sustainable public service
employment sectors. Part three of the paper attempts to map out some
strategies of how the ELR program in the Ethiopian Technical Vocational
Education and Training (TVET) institutions could be used to retrain the
unemployed youth and expose them across a wide range of institutional and
work settings. After generating effective youth employment intervention
strategies using the sustainable ELR strategies, finally, in the
conclusions and recommendation section, the paper draws some policy
implications. It is hoped that the paper will inspire greater discussions
and debates among readers and policy makers that the proposed sustainable
ELR programs could be better designed to contribute to the accrual of
secondary effects such as, social cohesion, empowerment, political
participation, and gender equality.
Sustainable Employer of Last Resort (ELR) Programs to Solve Involuntary
Giving less emphasis to
demand-pull and cost-push inflation that are generally regarded as factors
that place pressure on wages and costs of factors of production at
full-employment and in contradiction to Keynesian school of thought’s
argument that capitalist system fuels inflationary pressure at full
employment, and its wage rigidity concepts; the Austrian school economists
have been bold enough to argue that non-inflationary full employment is
possible if governments act as the employer of last resort (ELR) by
establishing a horizontal supply of jobs at basic wages level (Palley,
2001). More profoundly, the proponents of the Austrian school of thought
“claim that ELR will handle both the price (low wages) and quantity
(unemployment) problems that have historically afflicted decentralized
labor markets” (Palley, 2001). That
is, the Austrian ELR school of thought argument rests on the premise that
government can solve involuntary unemployment if it has the desire to
offer public sector jobs to job seekers who are ready, willing, and able
to work at a socially-established basic wage (Wray, 2007; Harvey, P. 2000;
Palley, 2001; Kaboub, 2007; Tcherneva, 2012).
Stated differently, the Keynesian
school of thought vehemently argues that an increase in prices of goods
and product at full employment would generate inflationary pressures.
However, unemployment can be mitigated by stimulus packaged or active
government intervention (pump priming or using stimulus package), using
fiscal (deficit spending) and monetary policy (lower interest rates) to
stimulate aggregate demand. However, a scholar from the Austrian school of
thought, Forstater (2004) argues that “even if Keynesian demand
management could achieve full employment, it is environmentally
destructive. Because competition compels firms to base their decisions on
private cost estimation, there are considerable obstacles to producing
green products, utilizing cleaner technologies and developing and
implementing alternative energy.” In short, by negating the
post-Keynesian school of thought that argues that full employment induces
inflationary pressure, the Austrian school of thought forcefully reverses
the post-Keynesian argument by stating that a comprehensive sustainability
program is necessary to shift modern capitalist economies to a sustainable
employer of last resort path
Given this argument, the Austrian
economists claim that deficit financing to create jobs by ELR programs is
not inflationary. More particularly, the Neo-Chartalism logic argues that
money injected by the government into the economy would come back in the
form of tax receipts to the government coffers. Also, the stimulation of
the economy would precipitate multiplier effects and further stimulate the
economy (Palley, 2001). According to Tcherneva, (2012), among other
factors, the ELR School of thought: 1) offers an infinitely elastic demand
of labor; 2) operates as a buffer stock; 3) stabilizes inflationary
situation; 4) operates with loose labor markets; 5) creates a stable
financial stability; 6) contributes to the stability of socio-political
and health conditions; 7) enhances and activities human capital; 8)
harbors social capital; 9) is not affected by international trade deficit
and foreign exchange depreciation; and 10) its cost ranges from 1 to 5
percent of GDP to the government.
1: The Effects of Employer of Last Resort (ELR) on Involuntary
Maintain infinitely an elastic demand for labor at a fixed living
is tailored to help the unemployed and underemployed who are willing
to work at basic (minimum) wage level regardless of the performance
of the economy. Unlike pro-growth and pro-investment aggregate
demand policies that are geared to solve the highly skilled, the ELR
program has no term limits and attempts to close the demand gap for
labor by guaranteeing a job at a base wage (Teherneva, 2012).
The ELR program acts as a strong counter-cyclical fiscal
stabilizer as the economy turns downward and during economic
government of Argentina provided a perfectly elastic demand for
labor, hiring everyone. It implemented its Jefes
program that paid the same compensation of 150 pesos per month
(though the poverty line was 300 pesos per month) for four months to
all employees who were willing to work. Though the compensation paid
to the ELR employees was below the official poverty line, the
program was targeted to achieve the intended goal. As stated by Wray
and Teherneva (2000), since the Jefes failed to eliminate unemployment, it cannot be regarded as a
true employer of last resort.
a countercyclical measure, the government uses the ELR method as a
counter-cyclical measure to hire unemployed workers during economic
slowdown. But, as the economy recovers, those who were hired under
the ELR program could move to work in private sectors, resulting a
reduction of public expenditures.
As stated by Tcherervia and Wray (2000), the ELR wage
allocation resembles a commodity buffer stock scheme. Labor is used
as the bench stock to stabilize the currency.
expected, Argentina’s wage level was earmarked to put a floor on
wages in both the private and public sectors. The Argentina’s Jefes was an exogenous wage and was below the poverty line, it
hardly met the effective minimum wage in the economy (Tcherervia and
Wray, 2000). Nonetheless, the Jefes
program was a very powerful countercyclical buffer stock.
Stables inflationary situation
is a minimum wage. Being equivalent to the living wage level, the
ELR wages are a cost in every producible commodity in the economy.
Thus, since ELR would not contribute to demand-pull (too much money
in the economy), instead it would act as a very fruitful strategy to
stabilize prices of goods and minimize the cost of inputs used for
productive purposes. This being the case, the ELR program would help
to stabilize the economy or act as a buffer stock. Therefore,
because ELR program offers a stable anchor to wages and a
countercyclical spending mechanism, the program acts as a buffer
zone or contributes to mitigate inflationary pressures.
Maharashtra Employment Guarantee Scheme was created because of the
National Rural Employment Guaranteed Act. To keep down inflation,
the workers were paid per local lawful minimum wage, and only one
member of each poor, rural household could work for only 100 days
stated by Tcherneva (2011b) and Forstater (1999a), with the
Keynesian pro-investment pump priming policies, economists never
exactly know how much demand stimulus (investment, portfolio
allocation) will be needed to produce as genuine full employment.
The decision is rather subjective and is very difficult to
calculate the multiplier effect.
In the ELR program, on the other hand, government spending
expenditure will be more or less equal to the workers necessary to
hire all who wish to work (Wray and Michell 2005).
to other ELR programs, South Africa attempted to directly deal with
its massive unemployment and to engage the poorest and most
vulnerable individuals within South Africa in 2004. The program was
a direct job creation and was known as the Expanded Public Works
Program. Employee of the
ELR program were engaged in fill the deficits in infrastructure and
social and environmental programs (Lieuw-Kie-Song, 2009).
Financial stability or minimize budget deficit
as a countercyclical tool assumes that countries with freely
floating currencies face no solvency problems or technical
constraints in funding ELR programs in perpetuity (Wray, 1998).
Thus, ELR programs cannot face financial fragility because
their programs are meant to improve wage and income distribution,
and lower poverty in the labor market. In short, ELR improves full
employment and brings stability without inflation and is not likely
to have an effect on countries with adequately floating currencies.
That is, a modern money system or the national fiat (chartalist)
money is not fixed to a commodity or pegged to gold or another
currency (Forstater, 2004). Therefore, as argued by Wray and
Tcherneva (2000) and the operation of the ELR program ensures that
the budget deficit was never to be too large or too small.
and Rezende (2010) argue that ELR is affordable in Brazil because
“Brazil is a sovereign country. The Brazilian government could
issue its own non-convertible liability.”
Furthermore, they argue that ELR program was designed to
ensure that the deficit spending is at the right level to ensure and
maintain full employment.
Social and local empowerment
programs allow local needs to be met by local people employment. The
local people manage it because it is very expensive to be managed
remotely. As stated by Mastromatteo and Esposito (2015), ELR needs
to include the active control of the local community that have the
unique capacity to ensure the input to the ELR workers and to
receive the social services. The
active participation from below and the expertise and coordination
from the center can ensure that the ELR program is effective and
efficient and gives value to work (Mastromatteo and Esposito, 2015).
cash transfers, ELR as a safety-net does not waste human potential. It
was designed to keep those who want to work engaged in productive
jobs. As stated by
Tcherneva (2012) ELR
could be designed the unemployed “to find decent work that
provides both on-the-job training, and other educational
opportunities that prepare them for post-ELR work.” Thus, training
and retraining was made to be an important component of every ELR
ELR program was implemented for 4 months.
Thus, its effect on unemployment was not encouraging.
Nonetheless, Jefes program
enhanced human capital. For
instance, a large influx of women participated in the program.
According to Wray (2007) the participation rate of women in
Argentina increased from 60 to 75 percent.
could be designed to provide social capital or perform valuable
work, or address new types of community-based projects. Some
examples of this could be related to projects that involve
environmentally sustainability, such as public infrastructure
(roads, street cleaning, public utilities, health services,
recycling efforts, urban landscaping, and community-based
environmental awareness education, etc.).
Jefes program allowed
state and local government to design and actively participate in
several programs. For example, some projects in Argentina produced
goods and services that were provided free of charge to poor
neighborhoods and still others produced goods for formal markets and
broadened the meaning of work by helping and caring for the
community. Because the
Argentina’s Jefes program
allowed four hours of work per day, the workers were encouraged to
form co-ops so that they could work during their extra hours.
9. Trade and Foreign Exchange
Unlike the Keynesian school of thought that claims that the part of
income earned by ELR workers could be spent on import products and
services and could contribute to trade deficit and might cause the
depreciation of the domestic currency and trigger a domestic prices
and wages spiral; the ELR school of thought argues that ELR is based
on floating currencies. Under ELR policy, the government has the
degree of freedom to spend without worrying the increased in ELR
10. ELR’s cost of budget
Given that the ELR program reduces unemployment and generates economic
and social multiplier effects, Wray forcefully argues that in the
long run ELR program can “pay for itself” (2007).
indicate that ELR is self-financing. The ELR program generally costs
between 1.0 to 1.35 percent of the GDP at its peak, with benefits at
least double in terms of GDP. While the full scale of Greece’s ELR
cost 1.5 to 5.4 percent of GDP (Mastromatteo and Esposito 2015),
India’s Maharashtra program cost about 0.6 percent of India’s
GDP. Argentina’s Jefes program
cost about 1 percent of Argentina’s GDP (Wray, 2007). South
Africa’s Expanded Public Works Programme (EPWP) cost about 0.7% of
11. Possible drawbacks
ELR could crowd out private sectors;
ELR employees are stigmatization
in unsustainable and are employed in unproductive jobs;
the ELR offers ‘low paying’ ‘dead-end jobs’ and denigrates
the unemployed (Tcherneva, 2012);
training targets and objectives set by the ELR projects are
difficult and ambitious (Lieuw-Kie-Song, 2009).
Theoretical Framework for Employer of Last Resort
Given the above theoretical framework and empirical
analysis, the hallmarks of the Employer of Last Resort (ELR) program, the
seven key types of ELRs state that ELR:
Promotes human rights, meets basic human basic, and
reduces the level of poverty. ELR ensures that jobs offered by the
government to involuntary jobseekers, who are ready, willing and able to
be engaged in productive jobs at minimum wage, will be able to find public
Wages are exogenously set by the government rather
than paying a market-determined wage, therefore ELR could be used as a
perfectly stable benchmark price or anchor, for labor. ELR faces no
financial constraint to implement job guarantee and income security. Thus,
unlike neo-classical economists who fear that high levels of employment
can introduce wage-price spirals, ELR enhances price stability by counter
balancing inflationary and deflationary pressures;
Does not waste human potential. It helps the
involuntary job seekers to receive on-the-job training and be retrained in
important component of every ELR job opportunities that may prepare them
for post-ELR work opportunities;
Assumes that countries with freely floating
currencies face no solvency problems of funding. ELR programs cannot face
currency depreciation and external trade deficits. Therefore, ELR is
expected to provide as an important anchor for the value of currency;
Has very effective counter-cyclical measures, and ELR
is a very powerful stabilizer of business cycles. The government uses the
ELR strategy to hire unemployed workers during economic slowdown. During
economic recovery period, however, those who were hired under the ELR
could move to work in private sectors, resulting a reduction of public
Produces an economic multiplier and contributes to
social multiplier associated with job creation, decrease crime and drug
use and enhances family and community cohesion; and
Unlike capitalism that fails to provide full
employment and adequately address sustainability, ELR encourages local
needs to be met by local employment and contributes to the minimization of
corruption. Given this, ELR provides social capital or improves or
addresses environmentally related community-based projects such as public
The Case of Employer of Last Resort for Mitigating Youth Unemployment in
As discussed above, Ethiopia seems
to be resting in paradox. Despite having a favorable GDP for more than
fifteen years, currently, Ethiopia is faced with exceptionally challenging
youth unemployment. The youth unemployment and idleness in Ethiopia has
contributed to massive social unrest in several urban areas. Rejecting the
Keynesian rubric that focuses on demand management that has failed to
either contribute to full employment or enhance ecological sustainability,
the empirical studies reviewed above indicate that if employer of last
resort (ELR) is applied systematically, it can substantially contribute to
full employment and price stability. Thus,
as a basic tenet that espouses human rights, ELR accords full employment
to involuntary job seekers who are willing to undergo retraining, be
involved in learning-by-doing activities, and work at the minimum wage in
environmentally sustainable projects that might contribute to improving
The World Bank (2016) estimates that youth
unemployment in Ethiopia is more than 23,506,005 (that is, 50 percent of
the 47,012,009 labor force)
and the mean duration of unemployment is about four years. Interestingly
enough, of the 150,000
graduates from colleges every year, almost half of them are unemployed for
the first year. To calm down the massive instability in the country that
were precipitated mainly by the unemployed youth, the Ethiopian government
has attempted to channel the skilled labor into the massive-scale
construction projects such as hydropower, railways lines, roads, housing,
water supply and irrigation.
Realizing that the above measures were insufficient,
more recently, the government has allocated about 10 billion birr
($444,139,700 USD/61.54 billion) or 0.72 percent of the GDP to resolve
the youth unemployment in the country. The preponderance of unemployment
in Ethiopia is due to the existence of mismatch between the skills
required by employers and those that prospective employees provide and the
growing number of high school and college graduates; achieving full
employment in Ethiopia has become dramatic and very challenging. However,
Ethiopia could manage the current rate of youth unemployment if it takes
its fate in its own hands rather than pursuing irrelevant economic
blueprints and attempting to abide by the rules of international markets.
Put differently, if Ethiopia wants the youth unemployment not to be a
burden on society, Ethiopia must reclaim sovereignty over its domestic
The prime purpose of this job guarantee proposal is
to initiate how the ELR program could be applied to solve youth
unemployment (both structural and cyclical types) in Ethiopia. To fully
appreciate and address Ethiopia’s ELR program, the initiated proposal is
meant to be guided by the following vital questions: 1) What are the
objectives of Ethiopia’s ELR program?
2) What strategic roles do the Ethiopia’s Technical, Vocational
Education, and Technical (TVET) programs need to play to fill the skill
gap for new jobs as proposed by the ELR program? 3) Who should administer
the ELR program? and 4) Can the proposed ELR program be affordable and
stimulate Ethiopia’s economy? Finally, the paper will address the
prospective lessons that could be drawn on in the future to solve
prospective youth unemployment using a well-articulated and designed on
ELR economic model.
of Ethiopia’s ELR Program: As it relates to ELR, Ethiopia’s Technical,
Vocational Education and Technical (TVET) programs has to be designed to
further serve as a roadmap to match up TVET schools and businesses. That
is, if the ELR program is submerged in to the TVET institutions, it is
possible to assume that TVET institutions would create a smooth pathway
from the TVET classrooms to office or factory jobs. Thereby, to serve the
ELR programs and facilitate jobs the ELR jobseekers, the TVET institutions
their curriculum (achieve cognitive objectives);
involuntary job-seekers who are willing and able to work at a living
(minimum) wage (cognitive objective);
ELR job-seekers to work in community-based environmentally sensitive
public services projects (behavioral objective), thereby minimize the
poverty level; and
dignified human existence (behavioral objective).
Currency of Technical, Vocational Education, and Training (TVET) as the
Retraining Centers for Unemployed Youth: Starting in 2002,
Ethiopia has established more than fifty full-fledged Technical,
Vocational Education, and Technical (TVET) programs. The prime purposes of
the TVET institutions was to: a) enhance competitiveness in the world
market, b) tackle the urban youth unemployment, c) resolve the bottlenecks
of producing competent workforce, d) create pathways to providing the
necessary labor market information, and e) connect the TVET students with
the skills required by the economy and allow them to start their own
businesses. In addition, the TVET’s in Ethiopia’s schools were
expected to serve as regional centers for technological transfer, provide
competent workers to MSEs (medium-sized enterprises), and to offer
management consultancy services to business within their communities.
Given these objectives, it could
be said that the TVET schools had a noble cause. Nonetheless, because the
TVET systems are not technologically and practically grounded, they have
been short on adding new values related to skill development to their
students. Because of the inconsistency between the demand for and supply
of workers, it is pertinent that the existing TVET programs in Ethiopia
need to be substantially overhauled and reoriented.
Given the trend in sustainable
development is the agenda for the twenty-first century, the TVET programs
in Ethiopia need to accommodate the third wave of industrialization. In
short, to undergo through the industrial process, the TVET institutions in
Ethiopia need to be tailored to provide to their learners a broad overview
of the intersection between economics, ecology, and social development.
TVET institutions must make their learners develop environmental awareness
and the graduates must be skilled enough to use green sustainable
technology in their prospective workplace (Desta, 2015).
Consequently, to respond to the
resulting updated requirements of sustainable development, the TVET
curriculum needs to be shifted to address new forms of instructional and
delivery strategy. To make this a reality, the existing teachers need to
be retrained and the new teachers need to be talented in environmental
sustainability that addresses and provides high-quality alternative routes
to teaching. Using market needs assessment and techniques, the curricula
need to be redesigned and grounded to integrate both well-coordinated
knowledge-based and competencies-based contents so that they are
applicable to ELR programs.
Furthermore, the contents of the
TVET systems in Ethiopia need to be decentralized with local industries
being involved in setting the curricula. The themes of the curricula for
ELR programs may include global awareness, business and entrepreneurial
literacy, creativity and innovation, information, communications and
technology (ITC), civic literacy, health literacy, and environmental
literacy (Krishnakumar, 2015). As
suggested by Wray (2007), a robust clinical experience or services that
could addresses the needs of developing countries may include: 1) public
school classroom assistant, 2) companion for senior citizens, 3)
neighborhood cleanup/ highway cleanup, restoration of public
infrastructure, 4) low income housing restoration, 5) day care assistants
for children of ELR workers, 6) library assistants, 7) environmental
safety monitors, and 8) community or cultural historian. In short, to fill
the skill gap for new jobs in the labor market and fulfill the ELR
programs, TVET institutions in Ethiopia need to encourage and help their
ELR learners be active participants and undertake innovative work in their
localities (Mouzakitis, 2010).
These types of programs can help
employers rapidly address skills shortages. Learners could efficiently
expand access to work opportunities. As articulated by the International
Labour Office (2009), young people who go through combined classrooms and
workplace training are 30 percent more likely to get a job than those have
only a classroom education. Similarly, the Manpower Group (2012) states
that success of ELR training-to-employment have to go beyond mastery of
the core subjects and mastery of technological literacy to: a) be
demand-driven and the learners are prepared for specific jobs, b) be based
on a firm employer commitment to articulate the skills of the trainee to
the needs of the job, 3) articulate post-employment counseling and
mentoring support for the trainee, and 4) allow the ELR employees repeat
engagement with other experienced workers needed for coaching and ensure
retention on the job. In short, before
navigating through the world of work, the ELR candidates at the TVET institutions must be
given fast-track retraining modules that
offer both theoretical and practical information.
of the ELR Program: As proposed before, in collaboration with the TVET
personnel, the ELR programs needs to be administered by local and
municipal governments who are most familiar with the economic needs of
their communities (Tcheerneva and Wray, 2000). To
be effectively run, the ELR program needs to be administered by committee
members that are primarily chosen from the community. Also, the
administrative structure mode needs to be decentralized or adhere to
devolution. To increase transparency and lower corruption that is very
rampant in Ethiopia, all involuntary job seekers or beneficiaries must
carefully verified before they are registered at the TVET centers. As
rightly stated put by Tcheerneva and Wray (2000), the ELR program needs to
handle the administration and run the program at a grass roots level,
because in addition to offering jobs to unemployed youth, the ELR projects
are supposed to offer social services that were geared to enhance civic
and Macrocosmic Effects of Ethiopia’ ELR Program: Before
outlining the budget needed for the proposed ELR program, let us assume
that the ELR workers are likely to spend their entire wages on
consumption, leaving nothing to savings. Given this assumption, the
propensity to save by the ELR workers would be zero. Thus, the changes in
income to changes in consumption in Ethiopia would roughly (mpc)
be 1.0. Similarly, the propensity to import is assumed to be zero.
However, since the Value-Added Tax (VAT) on consumption in Ethiopia is 15
percent, the marginal tax on buying goods and services is would be 0.15.
The tax on income is 35 percent; the marginal propensity of tax is
0.35. Therefore, the economic
multiplier would (1/0+.0.35+0.15+0.0) approximately be 2.0. That is, the
10 billion birr that has been allocated by the Ethiopian Government to mitigate
the rate of youth unemployment would further increase the original
investment of 10 billion by 20 million birr.
Because there is no a legislated
minimum wage level in Ethiopia, adjusted for the purchasing power parity,
or PPP (that assumes that exchange rates between currencies are in
equilibrium), in line with the international poverty index, Ethiopia’s poverty
line is assumed to be $2.00 USD per day. Therefore, an Ethiopian ELR
employee would be getting $480 USD per year (i.e., $2 per day times 20
days per month times 12 months). Therefore, the 23 million ELR workers
would be getting, $11.29 billion USD. This would represent approximately
about 18.35 percent of GDP (i.e., 11.29/61.54).
It is worth pointing that some
policy makers would be horrified and might feel that the calculation is
exurbanite and rests beyond the capacity of the government budget.
However, put in context, if the Ethiopia government believes that
employment is one of the basic rights, it wouldn’t tolerate and rest in
peace when 50 percent of Ethiopian youth are unemployed. Given that the
policy makers in Ethiopia have the empathy for the unemployed, they would
have no choice but to use ELR program at any cost to address the youth
unemployment problem in Ethiopia. After all, if the Ethiopian government decides to use the ELR economic
model, it could easily finance it out of the Ethiopian birr and not undergo through the conditions required to borrow
dollar denominated loans.
Given the Ethiopian government has
shown a political will and commitment to partially solve the massive
unemployment that has been the fundamental cause for the social unrest in
some parts of the country, then it makes sense for Ethiopia’s policy
makers to secure prosperity and high growth provided they use ELR at a
base wage to solve the erupting youth unemployment in the country. As
stated by Mastromatteo and Esposito (2015), “Public money used to
contain the crisis in 2009 amounted to about $23 trillion already. To save
US and EU banks their government used $14 trillion, which could have
funded 20 worth of ELR program in these economies. At the end of the day,
an ELR will always be cheaper than a lender of last resort program.”
and A Way Forward
Despite economic growth and a
significant increase in educational attainment for the last fifteen years,
Ethiopia had not revealed any significant positive impact on youth
employment (i.e., ages 15-24). Since 2013, more than 50 percent of the
Ethiopian youth with primary, secondary, and higher education have been
actively looking for work. Due to rural push and urban pull factors, and
skills mismatch between the demand and supply of labor, youth unemployment
in Ethiopia has been very visible in urban centers. In the perception of
employers, hiring someone who has been jobless for a long period is risky.
Given this trend, unemployment is expected to increase erosion of skills.
Therefore, to prepare the next
generation for successful future economic opportunities, the youth
unemployment that has been mushrooming in Ethiopia needs to be addressed
properly and strategically. The purpose of this paper was to investigate
the relevance of conceptual and theoretical framework of the economic
model, known as “Employer of Last Resort” (ELR) and verify its
possibility of integrating with environmentally sustainable development to
solve involuntary youth unemployment in Ethiopia. Resonating that
employment is a human right, the study assumes that if the government
funds environmentally-related projects to employ involuntary youth job
seekers at base wage rate, it would mitigate both cyclical and structural
unemployment without causing inflationary pressure on the economy.
To calm down the massive
instability in the country that were precipitated mainly by the unemployed
youth, recently, the Ethiopian government has allocated about 10 billion birr
($444,139,700 USD/61.54 billion) or 0.72 percent of the GPD to resolve
the youth unemployment in the country. Arriving at a conclusion that the
actions taken by the government were insufficient, the study has addressed
that youth unemployment problems in Ethiopia could be addressed using the
economic model known as Employer of Last Resort (ELR). In other words, the
study has proposed that if the Ethiopia’s Technical, Vocational
Education and Technical (TVET) institutions were overhauled and reoriented
to accommodate the ELR program, they could pave the way and create
pathways for smooth transition between classrooms and offices or
factories. In addition, to maintaining the existing TVET administrators,
it was suggested that the ELR programs has to include local and municipal
governments because they were most familiar with the economic needs of
their communities. Furthermore, to address the ELR program, the contents
of the TVET systems in Ethiopia were required to be decentralized with
local industries being involved in setting the curricula. Also, the TVET
curriculum had to be shifted to address new forms of instructional and
delivery strategy. But, to make this a reality, the existing teachers need
to be retrained and the new teachers recruited for the TVET schools need
to be talented in environmental sustainability that addresses and provide
high-quality alternative routes to teaching.
More specifically, it was
suggested that the themes of the curricula for ELR programs need to
include global awareness, business and entrepreneurial literacy,
creativity and innovation, information, communications and technology
(ITC), civic literacy, health literacy, and environmental literacy. To
help the ELR learners be active in undertaking innovative work in their
work settings, it was suggested that the curricula need to be redesigned
and grounded by integrating both well-coordinated knowledge-based and
The economic multiplier for
Ethiopia is 2.0. It means that the 10 billion birr that the Ethiopian Government has allocated to mitigate the
rate of youth unemployment would therefore increase by 20 million birr.
However, what the government has currently allocated to mitigate the youth
unemployment problem is inadequate, only 0.72 percent of Ethiopia’s GDP.
Even if we use the $2.00 USD per
head per a day as the poverty line, which fulfills the basic needs of an
individual, the 23 million ELR workers would have been entitled to $11.29
billion USD. This represents 18.35 percent of GDP (i.e., 11.29/61.54).
It is unfortunate that some
alarmist and some conservative policy maker might be horrified to suggest
that Ethiopia doesn’t have the capability to assign about 18 percent of
its GDP to solve the youth unemployment. However, if we put it in context
more than 50 percent of the youth in Ethiopia are unemployed and some are
undergoing under mental anguish, Eighteen percent
is not an unreasonable amount. Given that the government would give value
that employment is one of the basic rights, then, it would have no choice
but to use the ELR program to mitigate the irrupting youth unemployment.
After all, if Ethiopia abides by the ELR program, it does not need to
depend on foreign dominated loans. It can run its ELR program out of its
domestic birr without undergoing
Thus far, the Ethiopian government
has shown a political will and has shown a partial commitment to solve the
massive unemployment that has ignited political unrest in some parts of
the country. It is feasible that Ethiopia can secure prosperity and high
growth if it uses ELR at a base wage as the necessary steps to solve the
erupting youth unemployment in the country. After all, as justified by
Mastromatteo and Esposito (2015), at the end of the day, an ELR program
will always be cheaper than a lender of last resort program. Ethiopia’s
experience with ELR economic model would signify that direct job creation
that offers employment at a
base wage would generate a unique capacity to empower and undermine
prevailing structures that for generations has produced and reproduced
poverty and gender disparities. Though left untouched, it would be very
beneficial if further research could be explored to investigate the
secondary effects of ELR on social cohesion, empowerment, and political
participation. Therefore, it is my modest hope that the suggested ELR
proposal would entice and inspire greater discussions and debates.
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