A riddle in the labor market

Why is the unemployment rate among youths dropping steeply in Kazakhstan?

In the queue for jobs, youths are almost always at the rear. In the United States, the rate of unemployment among those aged 16 to19 is about 24%, almost three times higher than the rate for the general population (about 8.1% to 8.5%). In Greece, Italy and Spain, high rates of youth unemployment may thwart austerity programs.  Economists attribute the disparity to youths’ lack of education and work experience. In Kazakhstan, however, the unemployment rate is lower among youths than adults.

The unemployment rate – the share of the workforce that is seeking futilely for jobs – has been falling in Kazakhstan since 2001 at least. The decline is especially sharp for youths. In 2001, the unemployment rate for those aged 15 through 24 was almost twice as high as that for the population in general (19.1% and 10.4% respectively). By 2010, the unemployment rate for youths had fallen beneath the general rate (5.2% and 5.8%). That trend continued in 2011 (4.6% and 5.4%). Youth unemployment is no longer a special problem in Kazakhstan. Why not?

Service with a smile

One clue may lie in the changing nature of work in Kazakhstan. Like unemployment in general, that among youths has been seasonal, with the peak in the first quarter and the trough in the third. But seasonality has virtually disappeared in both unemployment rates since 2010. The most likely explanation is that outdoors work has become less common than it was. The economy is shifting from farming to services.

Some services – such as education, health and finance – require skills acquired only in school. If youths are better educated than adults, then the demand to hire them, rather than adults, may be increasing. But this would imply that areas where production is relatively intensive in these skills -- the cities – might see a drop in relative unemployment. In reality, the unemployment rates in Almaty and Astana were higher than the national rate from 2005 through 2010. Almaty's rate was a sixth higher in 2009 and remained a tenth higher in 2010. Astana's rate has been consistently lower than Almaty's but was still a twentieth higher than the national rate in 2010. Among the oblasts, the only unemployment rate that was consistently as high as those of the cities was Mangistau's.

The unemployment rate might also drop among youths because they are leaving the labor force in order to return to school. After all, the unemployment rate is the ratio of unemployed workers to the labor force. When an unemployed worker stops looking for work, thus departing the labor force, the relative reduction in the numerator of this ratio exceeds the one in its denominator, so the ratio falls. (An example might make this clearer. Begin with the fraction 4/5, or .8. Subtract 1 from the numerator and the denominator. The resulting fraction is ¾, or .75 – lower than before.)

But in general, dropping out of the labor force does not dominate the unemployment rate. If it did, then the fall in the number of unemployed workers should exceed the rise in the number of employed workers. But in Kazakhstan, the annual number of newly employed workers is seven times the annual reduction in the number of unemployed workers. The economy tends to create jobs rather than discourage workers.

The rising tide lifts the smallest boats

A final possibility is that the labor force creates more jobs for the young than for adults, so that the unemployment rate falls more steeply among youths than among older workers. In Kazakhstan, the rate of increase in jobs is not impressive -- an average of 2.2% from 2003 through 2010, only a fraction of the growth rate of the national economy. However, the population is also growing slowly – generally from 1% to 2% per year – so that growth in the labor force might easily cover growth in the population.

Perhaps the unemployment rate among youths is falling because economic growth creates jobs especially for the “first hired, last fired.” In a recession, firms lay off youths because these are their most inexperienced workers. When recovery ensues, firms hire them back. But this applies to most market economies, where the youth unemployment rate usually exceeds the adult rate.  Perhaps the longevity of the economic recovery here – 15 years, except possibly for 2009 – increases relative demand for young workers, since most adult workers who are capable have already been hired.  Such speculation aside, the mystery of the missing jobless among Kazakhstani youths continues. --Leon Taylor, tayloralmaty@gmail.com


Notes

All Kazakhstani figures are from the national statistical agency (www.stat.kz). The U.S. data are from the U.S. Bureau of Labor Statistics (www.bls.gov).