Unemployment: Causes and its Economics Outcomes during Recent Years in Afghanistan

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1 Unemployment: Causes and its Economics Outcomes during Recent Years in Afghanistan Summary, Conclusion and Recommendations The objective of the paper is to study the current situation of labor market in the country, identify its causes and effects on the economy, drawing both on quantitative data and qualitative information on the labor and employment markets to complement the existing literature and fill some of its gaps. Through a questionnaire (see appendix), 500 unemployed individuals in Kabul city that included high school graduates, university graduates, vocational institute graduates and illiterates consisting of street vendors, daily wagers and construction workers were randomly interviewed. Additional key informant interviews were also conducted with relevant experts on the topic. The structure of the paper is as follows: Section one describes the importance of the subject matter, the objectives of the paper, research methodology, the effects on the economy and the policy implications. Section two concisely discusses the nature, types, and theories of employment; it also identifies the causes of unemployment, factors that affect the demand and supply of labor, the equilibrium; besides, it also touches on the nature of employment, especially in developing countries. Section three discusses the nature of unemployment in Afghanistan. Finally, section four concludes the paper with policy recommendations. 1. Unemployment in Afghanistan Unemployment is a universal phenomenon that affects all countries, and to a larger extent the least developed nations and causes widespread poverty, social unrest, and one of the major reasons for insurgency in some countries, including Afghanistan. Slow and volatile GDP(Gross Domestic Product), low rate of investment, lack of government support of private sector, high population growth rate, repatriation of millions of migrants, lack of security, limited access to education, quality of education are some of the factors that have contributed to the high unemployment rate in the country. Afghanistan is one of the countries with low HDI (Human Development Index); the literacy rate is below 36%. The literacy is reported to be 32% in men and only 13% in women. The findings of this research show that though hundreds of millions of dollars have been spent on vocational institutes, the courses offered has 1

2 not been demand driven and based on the needs of the employers; besides, absence of a mechanism to link the graduates to the potential employers has caused many of such projects to fail to deliver the expected outcome. Unemployment in Afghanistan is attributed to various internal and external factors. The internal factors that affect the labor market in the country are: extensive supply of labor force, unavailability of skilled labor, concentration of jobs in Kabul and other major cities, comparatively low salary in government institutions, low absorption of labor in private sector, non-existence of practical policies and plans of government, administrative barriers to job seekers, nepotism, information on job market, unemployment in women. The external factors include, existence of large number of foreign workers, especially from neighboring countries, decrease in projects, NGOs, imports- less investment.. The implications of unemployment are insufficient family income, insurgency, depression in unemployed, child labor, lack of security. Challenges in addressing issues of labor market include lack of policy, not implementation of national strategies, corruption, low growth rate of private sector, no equilibrium demand and supply in job market The job market in Afghanistan is highly informal and characterized by low women participation, especially in paid jobs; child labor, vulnerability of jobs, ununiformed wage, dominance of foreign skilled workers and lack of security of jobs, especially in non-governmental jobs. According to the government estimates, currently the unemployment rate in the country is over 36% and increasing. Existing literature suggest that wide underemployment and disguised unemployment exists in all sectors. Agriculture sector employs over 60% of the labor force, followed by services sector and construction. The private sector in Afghanistan employs only a small percentage of workforces; the withdrawal of foreign troops and the declining aid in Afghanistan has further added to the volatile job market of Afghanistan, causing tens of thousands to lose their jobs, especially in services and construction sectors. Though foreign aid was the main driver of the economy in the past decade, not much investment has been done in sectors that can generate more employment. Lack of specific government policies and plans to address the growing rate of unemployment in the country, lack of practical measures to attract investment in the areas that generate jobs, privatization of nationalized plants that used to employ thousands of workers and increasing labor migrations are some of the biggest issues that affect the job market in the country. 2

3 The survey of 500 unemployed individuals in different parts of Kabul shows that the nature of jobs are temporary with inconsistent wage rates and many of the respondents have indicated that their income does not suffice their expenses. The survey also shows that unemployment is the major cause of social unrest, braindrain, and migration of workforce to neighboring countries, often illegally; a surge in the insurgency, addiction to narcotics, corruption, illiteracy of children and depression in individuals and families. Most of the respondents have pointed that the government plays an important role in bringing down the high rate of unemployment and have attributed the government s failure in doing so, to corruption and lack practical policies, support to private sector and security. The findings of the research also show that while over half of the population surveyed cannot envisage the situation of labor market after the withdrawal of foreign troops in 2014, i.e. the start of the Transformation decade, some argue that the declining aid, decline in economic activities, increase in insurgency and lack of security will further affect (negatively) the job market. A World Bank report in 2012 had also reached the same conclusion. 3

4 Recommendations 1. The government to focus on employment generating sectors, such as agriculture, mining, industries, services, etc. In agriculture sector, the government to support the private sector and give concessions, subsidies and tax breaks to investors in food processing plants and other players throughout the value chain. The government should also invest in irrigation systems and other infrastructures required. Mining is an important sector of that can contribute to a larger extent to the GDP of Afghanistan and plays a vital role in self sufficiency of the economy. Efforts must be done to lay the ground for the mining companies to process the extractives and the country and then export it. Similarly, the services sector is also an important contributor to the GDP of the country and employs thousands of people. Services sector in Afghanistan has seen as tremendous rate of growth over the last 12 years, but if one scrutinize the factors behind its outrageous growth, s/he will find that the major reason for the group have been the existence of international institutions and their logistical needs; thus, the withdrawal of foreign troops in 2014 will certainly affect the sector; however, Afghanistan does have the potential to keep the momentum and play its role in connecting the south and central Asia and by doing so, create thousands of jobs in the services sector. Also, experiences of countries show that industries play a pivotal role in job creation. In Afghanistan where most of our local manufacturing plants are categorized as infant industries and are badly affected by dumping policies of our neighboring countries, government support is a must for their survival and growth. 2. Government to liaise between the employers, especially in the UAE and other Arab nations to the job seekers in Afghanistan. Empirical data from countries like Nepal, India, and Philippines show that this, not only generates income for an individual or a family, but will also contribute to the GDP of the country in the form of remittances. 3. The vocational institutes while drafting the curriculum should consider the needs of the employers and build a demand driven capacity. 4. The government to establish Employment Services Centers in all the provinces, not only to provide information to employers and job seekers, but also as a center to gather the data about the job markets, i.e. the demand for skills and communicate it with the relevant institutions to 4

5 consider while drafting curriculums to ensure that the graduates from such institutions meet the market demand. 5. The government, at different intervals to conduct surveys of the job market and draft policies in line with the needs of the labor market. 6. The government to draft and implement social security schemes for the disabled and decent pensions both in government and private sector. The government should also pass laws to ensure the safety of labors not only government sector, but also in private sector enterprises. 7. The government should take practical and serious steps to the issue of nepotism and other types of corruption and ensure a transparent recruitment process. 8. The government should draws schemes, such as tax breaks, small loans, building infrastructure, etc. to encourage and support self-employment in the country. 9. Small and Medium Enterprises play an important role in employment generation; experiences of countries like India, Bangladesh and Pakistan show that the SME s have accounted for absorbing more than half of the workforce. Afghanistan can also, by drafting and implementing practical strategies support the SMEs to sustain and grow. Building infrastructure, providing necessary trainings, tax concessions etc. can help the SMEs to grow and employ a large number of job seekers. 10. Minimum Wage policy should be considered to ensure that the workers are not abused. 11. Since the literacy rate in the country is very low, the government should focus more on establishing and monitoring the progress of vocational institutes. These institutions should accommodate the needs of the employers in their curriculum and train the job seekers accordingly. 12. One of the most important tools to create employment is by establishing a mechanism of encouraging savings and channeling them into fruitful investments. Unfortunately because of the lack of trust on the banking system in Afghanistan, most of the savings are not utilized and most of the investment is done in assets like gold and purchasing land etc. therefore, the government should create a mechanism not only to encourage the people to have their savings in banks, but also to closely monitor the safety public funds in the banks and encourage the banks to facilitate investments, through loans in the country. 5

6 13. The government also needs to create a balance between the graduates and the jobs in the market. Afghanistan with a young population which makes 70% of the population is prone to a youth bulge if the needs of the youth are not met and unemployment increases further. One of the reasons behind the so called Arab Spring is said to be the same factor. According to some estimates, in Afghanistan, for the next 10 years 400, ,000 job seekers join the workforce. In absence of a clear and concrete strategy to create jobs, it can result to a chaos. 6

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