It wasn’t too long ago that Wallstreet was on the roll, but in reality, that growth was fueled by careless risk takings by the big banks. In the early 2000’s, the Federal Reserve heavily lowered the Fed Fund Rate, thus, cheap credit and NLPs (nonperforming loans) started taking place, allowing many consumers to borrow far more than they could afford. To understand what happened, we need to go just a few years back.
Let’s say you were a home buyer at the height of the market. Before you could get the house keys, you would have had to fill out a pretty big stack of mostly unintelligible mortgage documents from a big bank. This mortgage is essentially a debt note for the cost of the house. Now you might think that your bank would just put that debt note in a safe place while you went about making your monthly payments. But instead, that debt note took a little detour. Those loans got sold to other investors, which made big banks lose all incentives to avoid risks.
And as often happens when gamblers play with other people’s money, or money they don’t have, the big banks bet big, and lost big. And since the banks were so big, the entire economy got affected when they lost. Interest rates started rising back again, many subprime borrowers could not afford the higher rate as a result, millions went unemployed, small businesses couldn’t get credit, and the middle class got squeezed.
That brings us back to your nice new home. If you lost your job, you couldn’t make your mortgage payments. Worse, because of falling home values, you wouldn’t be able to sell it either without taking a big loss; putting you at risk of foreclosure by the big bank.
How did it end?
Wallstreet’s risky behavior had to be stopped. That was the purpose of the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010).
The Act worked on preventing Predatory Mortgage Lending by:
Restricting some of the riskier activities of the biggest banks
Increasing government insight of banks activities
Forcing banks to maintain larger cash reserves
After the Dodd-Frank act, the percentage of nonperforming loans (NPL) to total gross loans started decreasing (Data Source: WDI).
Banks have been prevented from growing so large that they put the entire economy at risk if they were to fail. And if some financial firm still gets itself in trouble, despite the strong regulations, it will get shut down. No more bailouts.
If you’re reading this blog, you are more privileged than 78% of the Lebanese population! The United Nations stated that 78% live under the line of poverty in 2021. Let me walk you through all the evidences and solution. GDP per capita is a perfect metric to measure the economic conditions of a country’s citizens: Lebanon’s GDP per capita plunged to a negative 21% growth in 2020. However, a bigger problem looms over Lebanon: It is far from being able to meet the UN’s 2030 Agenda, more specifically, section 8 related to economic factors. Section 8.1.1 in the 2030 Agenda requires all countries to sustain a 7% GDP per capita growth.
How can Lebanon Catch Up?
The answer is straightforward: Secure Foreign Funds! To secure such funds from international institutions like the IMF or World Bank, the Lebanese Government should implement quick local economic reforms.
The secured funds will then be used to transform Lebanon from a major importer to a major exporter. The funds must be invested in local production, tourism and domestic spending (infrastructure). This can definitely boost Lebanon’s GDP among several other reforms in different sectors.
Is it Really a Good Idea?
Many people are skeptical on borrowing from international institutions like the IMF due to the severity of their rules. However, let’s take Egypt as an example: Egypt increased IMF borrowings by 1,500% from 2015 till 2020 (yup, you read right, no additional zeros). The Egyptian government spent the funds on enforcing its local production and improving the tourism sector. As a result, Egypt met the UN’s Agenda 2030 economic goals and especially goal 8.1.1 (GDP per capita growth > 7%).
Recommendation
The one and only recommendation is for the Lebanese government: Implement the needed reforms, secure the foreign funds, invest them wisely and save Lebanon from the catastrophe!
“An unemployed existence is a worse negation of life than death itself“
Youth have long been a neglected, underserved and misunderstood population. In many low and middle income countries, youth are not able to enter the labor force in unprecedented numbers, leading to household poverty, inability to secure rewarding livelihoods and lower economic growth. With so much at stake, it is clear why youth development is an important economic development issue.
From 2015 until 2020, also in the wake of COVID‑19 impact, youth unemployment protestations have been significantly increasing across low and middle income countries. Ambitious and talented young people feel extremely hopeless and are looking for any source of light in their situation. Youth unemployment is quickly becoming a global crisis that needs to be primarily addressed.
Meet Amy Windfield, a senior consultant at the World Bank Organization. She works with the Social Protection and Jobs Global Practice at the World Bank. Prior to joining the Bank, Amy consulted for the International Labor Organization within the field of social security and financing. Currently, in her capacity, she provides analytical and operational support on various projects, tackling promotion of efficient and fair labor markets. Amy studied the youth unemployment crisis by better understanding the situation in general and by then providing a deeper and thorough analysis of the root cause problem of youth unemployment with proposed actionable insights and solutions for this global problem across low and middle income countries.
Amy provided us with a glimpse of youth unemployment alarming facts to raise awareness and understand the severity of this global crisis affecting youth generation.
Why Do Young People Experience A Disadvantage In The Labor Market?
A mix of factors should be considered when attempting to answer this question. First and foremost among these, is the lack of sufficient economic growth in many countries. The youth disadvantage is strongly and inversely affected by the business cycle; when an economy is expanding, its youth unemployment rate decreases more than the average, while it increases more than average when an economy is contracting.
A General Look Into The Data
What Has Been Happening?
Youth unemployment certainly also affects high income countries but has a bigger impact on low and middle income countries where there is presence of economic weakness as well as weak education quality. In fact, governments in lower‐income countries are increasingly looking for ways to improve youth employability and earnings, but regularly fail to recognize that the youth employment problem is simply a subset of the overall employment and earnings challenge, which is, in turn, a structural transformation challenge. In other words, employment opportunities in the economy will only improve with economic transformation.
By having a general look at the data, low and middle income countries such as Nigeria, Lebanon, Iran and India are highly affected by youth unemployment compared to high income countries.
When youth unemployment is not taken seriously as a major global issue, low and middle income countries will then experience poverty and economic weakness, as shown in the map below. Concerned countries are for example Sudan, Syria, Lebanon, Nigeria, Iran, for which their respective GDP per capita is low compared to developed countries such as Kuwait, United Arab Emirates, United States and Canada.
A Deeper Look Into The Data
Why Did This Happen?
There is a need to explore more fully youth unemployment causations, which will provide a more nuanced understanding of the association between youth unemployment and other factors.
Amy decided to dig deeper into the data and to take a market systems approach by analyzing the root cause problem of this global crisis rather than only its symptoms, to gain a better detailed understanding and properly share her analysis with the world.
Youth unemployment global problem is affected by several major causal factors.
1- Countries Inflation
From 2015 until 2020, low and middle income countries were suffering from inflation, particularly Sudan, Lebanon and Iran, with a significant inflation increase between 2019 and 2020, mostly due to the pandemic’s impact on the country’s economy. This economy inflation lead to companies’ downsizing and employees’ unemployment.
2- Population Increase Over Time
Over time, an increase in population across low and middle income countries can lead to a rise in the labor force of their community, leading the substantial chunk of population to unemployment. In other words, if a country’s human population exceeds the carrying capacity of its environment, then the populace is more than the amount of available or needed jobs.
3- Exports Of Goods And Services Across Countries
Amy also analyzed another interesting causal factor, which is related to the exports of goods and services for low and middle income countries. The global imports and exports can create a paradigm shift in the market economy of every country. In fact, if a country is facing trade deficit, this will negatively affect its market economy but if a country’s exports exceed its imports, more employment opportunities are provided as it requires more products to export and by then, more people are needed to keep factories running. For example, Iran, Lebanon, Nigeria and India are example of countries where exports of goods and services is low compared to developed countries.
4- Educational Attainment & Literacy Rate Across Countries
Finally, the most important causal factor of youth unemployment in low and middle income countries is the education quality and its attainment. Low and middle income countries lack valuable education and are the ones facing high unemployment rates over time such as Nigeria, Sudan, India & Syria, since education helps in enhancing chances of getting suitable jobs in a continuous competitive market.
Here comes the best part to Amy and to all of us, as well: Finding realistic SOLUTIONS to this global crisis by proposing certain action points and offering valuable insights that could be shared with all countries’ governments as well as organizations to help solve this issue.
How Should Youth Unemployment Solutions in Low and Middle Income Countries Be Designed?
Youth’s transition into employment in low and middle income countries is constrained by the economic development challenges and parses the evidence of the necessity of having programs and policies that will help in speeding that transition.
In fact, building long-term solutions with a holistic approach is the way to go. As per Amy “By understanding the economic geography of the concerned countries, we’re able to identify viable opportunities and create sustainable change, so improvements and job creation last beyond our involvement. A market assessment allows us to understand the needs of potential employers, so we can help ensure the skills young people are developing will match the needs of local economies.”
There are two main strategies for reducing youth unemployment.
1- Implementation of demand side policies to reduce demand-deficient unemployment
Policies to reduce unemployment could be monetary policy such as central banks taking appropriate measures by applying fiscal or also monetary policy measures.
2- Supply side policies to reduce structural unemployment
Supply side policies could be the implementation of education and training to help reduce structural unemployment as well as geographical subsidies to encourage firms to invest in depressed areas and have more flexible labor markets to make it easier to hire and fire workers.
Amy also decided to provide more detailed actionable insights regarding education quality and attainment, knowing its importance in overcoming this global crisis. Education should start early in school and teachers should pay close attention and take care of every child to ensure good educational progress. Moreover, children from families who do not care about their education, should be supported by community programs & financial aids to offer them a fair chance of increasing their education level and make them better qualified for jobs i.e., reduce structural unemployment.
As a conclusion, youth unemployment can be a serious problem, especially in structurally weak geographic regions where firms do not have proper incentives to open branches. Governments have to take suitable measures to fight these high levels of unemployment and by doing so, more people can get back into work and overall quality of life for people is likely to increase. This could mean giving firms the incentive to employ more people or also provide better education for the general public helps in decreasing youth unemployment naturally.
After shedding the light on all those important points and promising solutions that can lead to solve the global problem of youth unemployment, Amy will share her analysis with the International Labor Organization as well, to communicate all of these insights with the governments of the concerned low and middle income countries. Hence, effective programs would be implemented on the long run, leading to sustained, inclusive and sustainable economic growth for full & productive employment as well as decent work for all.
This study is based on youth unemployment data from the World Bank (World Development Indicators).
“I am a failure, I won’t get any job!”
Have you ever heard someone saying this?
Have you maybe even been that person?
Losing employment is one of life’s most stressful experiences.
Aside from the obvious financial distress it can cause, losing a job can also take a heavy toll on one’s mood, relationships, and overall mental and emotional health.
Societal costs of high unemployment include poverty, homelessness, physical and mental illness, decline in life satisfaction, higher crime and a reduced rate of volunteerism.
Thus, fighting unemployment is one of the world biggest challenges. Some countries could achieve major improvements by producing more goods and services in a given time frame (i.e. one year). In other words, they could achieve lower unemployment rate by increasing the country’s Gross Domestic Product (GDP).
Nowadays, countries having low unemployment rate such as USA and China have the world’s highest GDP, whereas in South Africa where the unemployment rate is much higher, the GDP is relatively low as shown in the visualizations below:
Who is responsible?
Increasing the country’s GDP is an effective solution of the unemployment issue because of the job opportunities it creates. This can be achieved by promoting education, developing new technologies, improving infrastructure including roads, schools, hospitals, phone lines, transport, electricity, Internet, water supply…
It is also recommended to adopt more flexible working practices: people could choose to work fewer hours, giving the chance to raise employment in the economy and resulting in unemployed population getting a part time job.
Fighting unemployment is a difficult long journey and the contribution of both private and public sector is mandatory in order to make it happen.
Could startups be a remedy to the Lebanese economic situation?
Lebanon has been facing an unparalleled situation for the past 2 years. Since the October uprising in 2019, it has been a steep downhill for the Lebanese Economy. Looking at the country’s GDP, we notice that the Lebanese economy was flourishing prior to 2017. However, since 2018, the GDP annual rate has decreased exponentially to reach a rate of 25%. These trends can also be seen in the Lebanese unemployment rate, where the rate decreased slightly prior to 2017, but then dramatically increased to reach 40% by the end of 2020.
Obama once said, “Small businesses are the backbone of our nation’s economy…”. Therefore, we will be monitoring the effects of new businesses and startups on the unemployment rate and GDP.
Studying the situation in the United Kingdom, for example, we see that as the number of new businesses registered increases, the unemployment rate decreases. Similarly, looking at the effect on GDP, we see that new businesses have a positive influence on the countries GDP. Looking at the global trends of the time to start new businesses, we see that there is a global positive change in trying to decrease the amount of time required for new businesses to get up and running, which doubles down on the importance of new businesses and ventures. However, unlike the global trends, in Lebanon, the time to start a business has been constant at 15 days for the past 12 years.
Now that we have seen that startups decrease unemployment and stimulate GDP growth, and there is a global positive shift to ease starting new businesses, the Lebanese government plan of action should be:
1) Reduce time to have startups active and running
2) Provide easy availability of loans for new businesses
3) Reduce taxes on new businesses
to provide an environment that attracts startups and in turn improve the Lebanese economy.
