Unemployment Crisis Amongst the Educated Youth

After spending a whole half-day within the halls of IT firms and software companies, Rajat heads back home in the evening only to once again open up his laptop to apply for more jobs and confirm upcoming interview dates. He has been doing this for nearly two years. Rajat’s unemployment predicament is not his alone. All around the world for the past decade there has been an ongoing global youth unemployment crisis.youth unemployment, unemployment rate
Get busy living or get busy dying.The more educated you are, the higher are the chances of unemployment. It seems controversial or against general wisdom but it’s true.Who are the “unemployed educated” youth? Where and since when has this been an issue?
There are 1.2 billion youth in the world (between the ages of 15-24) – accounting for 17% of the world’s population. Among them, those who are not in education, employment, or training but are actively seeking work are defined as an “unemployed” youth by the United Nations.Youth unemployment rates tend to be higher than the adult rates in nearly every country in the world. – SourceAlthough the global economy has fairly grown over the past two decades, youngsters today are less likely to secure a decent job than labor market entrants in 1995. Economic growth has not translated into sufficient levels of jobs creation, especially for youth all around the world. According to the International Labour Organisation (ILO) there are 71 million unemployed youth worldwide.educated unemployment from 1995 – 2015, youth unemployment
Youth unemployment rates 1995-2015This crisis is prevalent in both developed as well as developing countries. Graduates and youth who have completed their secondary studies make up most of the unemployed. Among the OECD (Organisation for Economic Co-operation and Development) countries; in cities such as Britain of United Kingdom; one in five young people can’t find work. Those that do, are predominantly hired as a temporary contractor or on an internship basis – most of which are underpaid or unpaid. Hence, many are dependent on their parents until their late twenties. As a result, many graduates are now questioning the necessity of incurring large student debts for a degree that does not give them an advantage in the job market.graduate unemployment rate, youth unemploymentSimilarly, amidst developing nations such as India, the rate of unemployment increases with an increase in levels of education. But when it comes to the issue of gender bias, it becomes obvious that women face much higher rates of unemployment as against their male counterparts across all educational categories. Additionally, south Asian women do not work after secondary education due to cultural reasons.”Those who have had below secondary education have better chances of employment than those who have had their secondary education.” – sourceThose whose families are economically better off tend to stay with them until they find a suitable job that may accommodate a livelihood. Others settle for work that they are either overqualified for or one in the informal sector. Such was the case in September 2015 when Ph.D. holders applied for the Uttar Pradesh government secretariat peon post in India. While the educated fight for jobs they are overqualified for, the impoverished face a catch-22 situation. I.e They need higher education to earn more money but they need more money for obtaining a higher education.This is a scenario where they need better education to get paid better but needs to be paid better to access better education.SourceCauses of unemployment
There are multiple causes of this crisis. The quality and relevance of education, inflexible labor market and regulations, which create a situation of assistance and dependency, the significant economic slowdown in major emerging countries to name a few.The skill crisis
The independent universities and institutes are given autonomy so that they may create courses and skills that cater to the demands of industries – however, that is not the case. In almost every country, education is not tailored to the needs of the labor market. This leads to the inability for young people to find jobs and the inability for employers to hire the skills they need. Combined with the economic crisis and the lack of sufficient job creation in many countries this has resulted in high unemployment rates around the world and the development of a skills crisis. You can check out our previous article on unemployable engineers which highlights this skill gap very evidently in the case of India.As the International Commission for Financing Global Education Opportunities reported last year, about 40% of employers worldwide find it difficult to recruit people with the skills they need.graduate unemployment rate, youth unemploymentInefficient labor markets and regulations
Employers are cautious about hiring full-time employees as they cannot be easily laid off later if found to be incompetent due to a high level of employment protection.This has led to the upcoming boom of temporary forms of work such as internships, short-term contracts, and seasonal jobs which has created a precarious situation for young workers. This is because their jobs are temporary contracts and these youth would often be the first to be laid off when a company downsizes. And if they are laid off, they are not eligible for redundancy payments because of their short period of time working for that company. Hence once that work ends, they’d find themselves unemployed and disadvantaged in the job search. Only to start over once more. However, some youth are entering work on a part-time basis during tertiary education. This rate is low in countries like Italy, Spain, and France but in the United States, almost one-third of students combine education and work.This has although brought forth the legitimacy of an internship. The purpose of internships is to allow students or recent graduates to acquire work experience and a recommendation letter to add to their curriculum vitae, so that it may increase their chances of gaining a full-time employment offer. Many interns have however complained that they are simply performing basic grunt-work, rather than learning important knowledge and skills. With little to no job growth occurring, it remains the only viable alternative to job placement for the young individual.Assistance and dependency
In some parts of the world, young people’s ability to engage and become economically independent has been affected by the 2008/09 economic crisis and, more recently, by a slowdown in global economic growth. Hence to support unemployed youth income assistance is provided by countries around the world. This is done until the labor market and economic conditions improve. But this has faced severe flack as it might increase dependency on government assistance. Hence, certain governments are redirecting funding to targeted programs for increased learning and training opportunities. Also, many governments are encouraging youth to be job providers rather than job seekers by creating a nurturing environment for entrepreneurs and start-ups.Battling educated unemployment
The crisis has resulted in political unrest and increased public spending, a lack of innovation due to lack in talent influx and a lost generation. Several possible solutions have been/can be implemented.A shift from traditional methods and means of teaching is necessary. Reforms in Labor market policy and institutions to facilitate employment for youth: First, a more balanced employment protection for permanent and temporary workers is needed. It will ensure that young people who lack work experience can prove their abilities and skills to then progress to regular employment. Equal treatment between permanent and temporary workers should be encouraged.Second, some countries consider shifting their support from direct financial assistance to funding apprenticeship. Others are increasing their support tying it back to stricter obligations of active search and training.Vocational education or technical training of youth prepare them for a specific job. Several countries and organizations are also focusing on entrepreneurship amidst the OECD countries as well as in G20 countries. Thus making the youth job creators rather than job seekers through small and medium enterprises. Additionally, assistance to youth in transition to the work world by organizations such as United Nations, etc as well as an active participation and involvement of youth in political, community and economic fields have emboldened and empowered the educated youth to rise above their predicament.

Creating Value and Managing Investors

What does “value creation” mean? How can companies prevent value improvement plans from culminating in value destruction? The answers lie in Value Based Management, a framework designed to manage internal corporate processes in order to maximize the created value.Why do value improvement plans so often fail to impact the company’s market value? Is it an undervaluation issue? How can managers change the market’s assessment? The answers lie in the Active Shareholder Management, a framework designed to identify target investors through segmentation and to develop a strategy that, consistent with value creation plans, enables a company to optimize its market and shareholder value.The following presents a comprehensive view of value creation, from an internal point of view, Value Based Management, and from an external view, Active Shareholder Management.What does “value creation” mean?It is common for management to announce plans to create value for stockholders. It is also common for their financial statements down the line to reveal that if anything, value has been destroyed. What went wrong?It is crucial for managers to realize that “value creation” is a clearly defined and tangible measure, based on interpretation or personal assessments. Mathematical formulas exist that objectively and rigorously verify whether value has been actually created, based on financial statements. These formulas are based on the EVA(TM) or Economic Profit concept, which is defined as the difference between the return on the invested capital and its cost.If the return on the capital employed is higher than its cost, the firm is creating value. Otherwise, it is destroying value.Once “value creation” is defined, how can it be maximized?Based on our consulting experience, companies that have low value creation trends are usually plagued by poor managerial processes. VBM (Value Based Management) is an approach that aims to maximize value creation by effectively leveraging and aligning strategic actions, resource allocation, performance assessment, and management rewards.VBM has been successfully implemented by a large number of widely diverse companies around the world. Some demonstrate the approach in their external communications: For example, see the section of the BASF website dedicated to value creation.Companies may differ in terms of size and business focus, but if they successfully implemented VBM, they share two elements: an organic approach and a well-designed roadmap.Deploying VBM means to redesign and align all internal processes. Once the value creation indicator is well defined, every process, from the strategic plan to management incentives, has to be renewed.Logically, VBM must start with building a strategic plan designed to maximally improve the value creation indicator. The next stage is disciplined execution, which is monitored by a system of Key Performance Indicators. Lastly, the management incentive plan must be shaped to focus on value creation.VBM implementationThe standard VBM framework can be altered based on the needs and priorities of the client. Timing and characteristics of implementation may also be changed.The key point for a successful VBM program is organic implementation, even if the sequence of projects and actions differ from company to company. VBM deployment requires discipline in following a precise action plan. Management must have a roadmap in place that clearly defines all actions that have to be taken along some key dimensions (value indicators, processes, systems and incentives), and sets clear milestones.A medium to long- term range of vision is necessary to effectively drive implementation. That is why CEOs with a “short term scope” tend not to start such programs.VBM is a comprehensive program that requires a strong leader, typically the CEO, to drive its implementation. Introducing the approach is an opportunity for a significant cultural shift and upgrade at the company. Within the roadmap, management must also plan times for collective discussions, sharing, and alignment involving the entire management team, in addition to communication and training sessions throughout the organization.VBM is not just something to make the company work better. It is the key methodology to maximizing economic profit and, consequently, company share value. In fact, the firm’s market value is directly linked to the present value of future company performance, measured as economic profit.
Merely deciding to adopt VBM isn’t enough. It is common for VBM adopters to fail to translate improvement plans into higher market value. The mismatch lies in two root causes: unrealistic hypotheses about planned future performance and secondly, the financial community’s failure to recognize the company’s fair value.This article investigates the second problem.Active Investor ManagementSome managers accuse the market of not being rational enough. We, however, believe that the problem isn’t a crooked dance floor. The main source of mismatched market value to expected Economic Profit improvements lies in management’s failure to properly communicate the firm’s value to the external world.Active Shareholder Management (ASM) is an innovative methodology to enhance company market value by managing key financial investors. The main goal of ASM is to develop a strategy that, given internal plans and results, maximizes value to shareholders.The ASM approach is based on Investor Segmentation, a tool to identify and understand major investors and, consequently, to manage them. Investor Segmentation exploits the breadth of increasingly available information channels in order to provide CEOs and CFOs with the elements required to target new investors and define an active and effective financial communication strategy.Investor Segmentation is based on a coordinated analytical effort. It can be carried out through various data gathering methods and market intelligence sources. Focused interviews with investors are performed to outline management styles and behaviours. Desk research allows investigation of different investor strategies and clusters them homogenously.Particular attention should be paid to investors holding significant assets in similar companies, which identifies the most relevant shareholders – including ones who currently do not hold positions and could stand to be further explored.With the identification of key investors in hand, managers are equipped to visualize the actions required to improve shareholder value. In fact, based on the ASM approach, managers can “test” their potential actions by simulating investor reactions with the help of mathematical models, and can therefore predict the impact on the share value.Future investor behaviour is a relevant input for business, financial, and communication strategy.Consider dividend strategy. Some investors do not “appreciate” dividends, many for tax reasons. Others do like them, for instance stockholders in low tax brackets who need cash from dividend payments or tax-exempt institutions that need periodic cash. Many investors are simply used to receiving dividends from a given company and would frown on any reduction.There are also investors who prefer companies that pay no dividends, channeling the money instead into ambitious “growth stock” strategies. Other investors prefer more stable behaviors, typically “value stock” companies, where dividends are usually quite high and constant.These preferences are often public knowledge and can heavily influence the actual portfolio strategy of fund managers. Awareness of this information can help managers better understand which investors would be attracted by their strategies.Buy-back operations and stock splits, common tools to increase company market value, must also be planned with key investors in mind, factoring in their needs and foreseeable reactions. Equity repurchasing can deliver a strong signal of management confidence in future performance. Following buy-back announcements, financial analysts frequently revise their earnings forecast estimates upwards. An empirical study showed an average abnormal share return of 3.42% .Managers have to develop ad hoc approaches for each segment of investors identified. For instance, investors who rely on analyses based on “strategic” issues would prefer information regarding industry trends, competitive strengths, and new “growth stories”. Meanwhile, “finance-oriented” investors prefer data related to cash flow, operating profitability, and working capital returns. Communication actions such as preferred channels and frequency of the meetings must be tailored accordingly.ASM ImplementationASM managerial methodology has not yet attained the popularity of VBM, mainly because investor management is usually restricted to the Investor Relations team, yet it should be a process that involves the whole organization.Many companies, including large corporations, manage investors with a highly qualitative approach, based on personal relationships. Analytics are rarely and poorly used, which is a striking difference compared with standard sales and marketing activities and tools – that essentially helps a company to sell a product/service to someone (a client, not an investor).To create momentum for ASM implementation, a clear benefit case must be built. In addition to the advantages already described, a further key benefit of ASM is the opportunity for top managers to spend their valuable and expensive time more accurately. Deep knowledge of target investors improves focus: management can attend only the “right” events and meet only the “right” investors.In conclusion, value creation can be, and should be, measured analytically. It is an objective quantity, not a qualitative interpretation. Best Practices apply Value Based Management as a tool to manage internal processes with the aim of increasing the value created for shareholders.When improvements fail to be reflected in market value, management must work on communication strategies. Active Shareholder Management can be leveraged to influence market perception by delivering the right messages to the right investors, in a way that they can hear loud and clear.