The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

The Pandora’s Box of graduate employment
The employment of graduates by the government recently has created an unexpected chain of events that has resulted in another headache for the government. Like Oliver Twist the employed graduates are asking for further improvement of their status: permanency, a salary scale and pensions.

Those not employed are clamouring to be recruited as it is claimed that not all unemployed graduates have been employed. Graduates and their supporters as well as the main opposition party assert that the government has employed only around 10,000 of the 40,000 unemployed graduates. The demonstrations by these new unions and their supporters have added further chaos to an already chaotic socio-political situation.

There was no plausible economic argument for the recruitment of graduates. It was entirely a political move to win votes among a politically vocal group. The long-run consequences and ramifications of giving employment to graduates were not considered at all. Instead it became a boast of the government, another achievement of the People's Alliance. Sri Lanka has the highest number of public servants in relation to her population. These additions would have made the numbers in the equation even more excessive. Why the government recruited these graduates is not in the realm of economics. It is part of the competitive politics the country boasts of.

Several questions make the issues very clear. Were there vacancies in the public service before the recruitment of these graduates? If so why were they not filled? If the answer is that there were no vacancies, then is their employment productive? In all probability they are not likely to be productive. Unproductive employment will add to the burden of the public finances. One of the fundamental reasons why public expenditure is excessive is the wage and pension bill of the public service that absorbed about Rs. 95 billion or 21 per cent of expenditure in 2004. Now this is bound to rise with this recruitment and the increase in salaries. So the problem in the public finances will be compounded.

Further, the recruits are most likely the ones least fit for the service and their skills and efficiency are likely to be low. This inference is reasonable as they are the graduates who were unable to find employment in public or private sectors. To put it bluntly, the government has for the most part, employed the unemployable. It has also given the wrong signals for the future, as the expectation that the government should provide employment for graduates of the country's expanding network of universities, has been reinforced. So the country will be expanding university education and employing those graduates who would not have been recruited on their own merits.

Consequently the country would be producing graduates of poor quality and providing employment for these otherwise unemployable graduates. The problem would grow in an exponential manner. It will perpetuate poor quality university education and distort the priorities in university education. Successive governments were unable to recruit the passing out medical graduates as interns, with many of them having to wait as long as a year or more to be recruited.

In a country where the doctor population ratio was unfavourable, we were unable to recruit the medical graduates owing to a shortage of funds. But there are enough funds to recruit graduates. This has been the state of prioritisation and decision making of governments.

There are two dimensions to the problem. One is that the growth of the Sri Lankan economy has been inadequate to generate adequate employment opportunities for educated youth. Equally true, the university education system turns out the wrong mix of graduates: graduates without the requisite skills for employment. Without seeking hard solutions to a difficult problem, we have accentuated the problems themselves. With such employment government's resources are being spent unproductively and consequently the capacity of the government to undertake vital investments in education, health and economic and social infrastructure would be thwarted.

If economic growth has been inadequate to generate the needed growth that would provide employment, the waste of public funds would only curtail investment for growth and result in continued sluggish growth in the economy.

The Pandora's Box of graduate employment is complex and complicated. It appears that many of those who have secured employment have left their places of employment or given up the enterprises they were operating to be employed in the public service. Persons earning higher incomes in productive employment have given these up for secure government jobs with expectations of low job performance, pensions and security. In brief graduate employment has distorted the labour market and decreased overall labour productivity.

The promise of employment of graduates in the public service has generated its own demand for jobs in government service. Political motivations of governments are driving the country more and more into the economic morass. The economic problems are themselves creating difficulties for incumbent governments and their successors. Getting out of this cyclic course appears impossible. A downward spiralling economy will be the net result.

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