Photo Credit: Rizky Sabriansya via Pexels.
Originally published in WeChat. Republished in translation by The China Academy, on July, 28, 2023.
An urban unemployment survey conducted in March 2023 revealed a 1.5% increase in the unemployment rate for the 16-24 age bracket, to a total of 19.6%; this is the highest on record for this period. This alarming statistic has sparked widespread concern and intense scrutiny from domestic and international media.
Whenever the youth unemployment rate surges, the public discourse often focuses on unemployed fresh college graduates, emphasizing economic hardships, poor corporate profits, and large-scale layoffs. Nevertheless, several misconceptions about this data often go unnoticed, leading to a lack of attention to the actual pressing issues.
First, while the youth unemployment rate is indeed rising, the term “youth” doesn’t necessarily refer to young adults in the traditional sense. A recent research report by Guojin Securities, titled “Why is the Youth Unemployment Rate Rising Against the Trend?”, provides an insightful analysis of this issue using publicly available data.
The unemployment rate for the 16-24-year-old demographic doesn’t encompass students (the average undergraduate graduation age is 22-23, and for vocational college,21-22). Census data reveals that, excluding students, college graduates only make up one-third of the 16-24 age bracket, with the remaining portion being high school graduates or those who are less educated.
Therefore, this specific unemployment rate is more of a reflection on the joblessness of less-educated youth. While this isn’t intended to downplay the gravity of college graduates struggling to find jobs post-graduation, it’s not what this data primarily indicates. Instead, it highlights another equally significant but often overlooked issue – the employment scenario for 280 million migrant youth workers aged 16-24.
The problem lies in the top five employment sectors for individuals aged 16-24, according to China’s 7th National Population Census. These sectors include manufacturing, wholesale and retail, accommodation and catering, education, and construction. These segments collectively account for over 60% of employment. Apart from education (7.1%), the other sectors are major sources of jobs for young migrant workers.
An examination of employment trends in these industries over the past decade reveals a decrease in employment share in manufacturing, construction, wholesale and retail, even before the pandemic struck.
Significant decline in urban employment in manufacturing, wholesale and retail trade, construction, etc.
Increase in employment absorption in manufacturing industries, such as computers and communications, etc.
Observing the sub-sectors within “manufacturing”, the largest employer, it’s clear that over the past decade, relatively high-end industries such as computer technology, telecommunications, and electronics have absorbed more employment. However, labor-intensive sectors such as textiles, clothing, food, and furniture manufacturing have seen a significant decrease.
This long-term trend has been particularly severe this year, likely due to two primary factors:
- Over the past decade, youth employment has gradually transitioned from manufacturing to services. However, the services industry has been severely hit by the pandemic in the last three years. While consumption has rebounded post-pandemic, employment often lags.
- After the pandemic, the number of youth seeking employment has surged, causing labor supply to recover faster than demand.
Confirmation of this theory is supported by the increase in the unemployed population’s data. The largest monthly increase this year was in March, following the Spring Festival peak for migrant workers entering cities. The subsequent decline starting in April suggests a recovery in demand reflected on the hiring front.
Youth unemployment rate and monthly jobless additions.
First-quarter job recovery also dominated by services such as restaurants and accommodations.
In the long term, this issue warrants policy solutions. For the current year, however, it’s a structural mismatch that is gradually improving. Current trends suggest that the accommodation and catering industries, which absorb relatively low-end employment for the 16-24 age group, are on an accelerated recovery path.
Is the rising unemployment rate caused by companies laying off employees and going bankrupt?
In many media narratives, unemployment is frequently associated with socioeconomic phenomena, corporate profitability, and large-scale layoffs. However, a recent research report titled “Youth Employment: Unearthing the ‘Scar Effect’ within the Three Factors Framework” from Deutsche Securities, based on the 2021 China Labor Statistical Yearbook’s unemployment data, proposes a different perspective.
Among employed individuals aged 16-24, 68.2% voluntarily resigned, while a mere 8.5% were involuntarily removed or laid off due to company closure. The trend was similar for the 25-34 age group, with 63.2% resigning of their own accord, and only 14% being laid off or having their company shut down.
Causes of unemployment for people of different age groups (Legend from left to right: Voluntary resignation, Layoff, Company bankruptcy and shutdown, Others, Never worked before)
This data aligns with the corporate perspective. To enhance profits, companies often prioritize laying off older, higher-paid employees over 35, instead of the newly hired, lower-paid graduates.
Indeed, this is commonly referred to as “naked resignations（裸辞）”. Remarkably, this time more than two-thirds of people were unable to secure new jobs promptly.
The reasons for young people’s “naked resignations” can be categorized as follows:
- Habitual Resignation: The favorable employment conditions for the under-35 labor force have led to high job mobility. Many have developed a habit of resigning casually. There is a common saying among the Chinese, “If it’s not good here, there are better places out there（此处不留爷自有留爷处）”. However, due to the pandemic’s impact, job opportunities dwindled and periods of unemployment extended.
- Induced Resignation: Companies often resort to various strategies to pressure or persuade employees to resign voluntarily, so as to reducing layoff costs. Younger employees, compared to their over-35 counterparts with heavier family responsibilities, are more impulsive and more inclined to “naked resign”.
- Delayed Employment: Young people, when dissatisfied with their current job and struggling to find a new one, are more prone to temporarily halt work to prepare for civil service exams or postgraduate entrance tests, intending to resume job hunting if these plans don’t pan out. Some young individuals from affluent families may choose to take a break, cater to family needs, or pursue personal interests, intending to find suitable work later.
However, it’s crucial to note that the survey unemployment rate adheres to strict “unemployment” definitions, requiring fulfillment of all three conditions:
(1) Not currently employed
(2) Actively job hunting within the three months leading up to the survey date
(3) Availability to commence work within two weeks of being offered suitable employment
If a person chooses not to work for an extended period, prepares for exams over a long duration, or opts to become a full-time homemaker, they are considered a “non-labor force” and are not included in the unemployment rate calculation. Reduced labor participation leads to another serious issue that warrants further analysis.
4. Freelancing: Technically, freelancers are part of the employed population, defined as “individuals who worked for 1 hour or more during the survey reference week to earn labor compensation or business income.” However, those who feel such income is insufficient may choose not to report this, and thus are counted as part of the survey’s unemployed population. Most young people lack the necessary skills for freelancing and often harbor unrealistic positive self-perceptions, leading in most cases to “freelancing = unemployment.”
From these factors, it’s clear that the discrepancy between youth and overall unemployment rates is not merely an economic issue; it’s more of a liminal state oscillating between “active choice” and “forced acceptance”.
As previously stated, the issue of youth unemployment must be dissected into two parts. The first quarter primarily reflects the predicament of young migrant workers with low education, a purely structural economic problem where demand recovery lags behind supply. This situation is progressively changing.
Employment pressure on college graduates is concentrated around July.
The number of employees in listed education companies has not improved.
However, a more pressing issue is the impending unemployment among university graduates. Historical data shows that employment pressures for college graduates, including both new entrants to the job market and those who previously resigned, peak around July. From an industry perspective, the demand in key sectors such as real estate and internet services, which often attract college graduates, continues to decline. Similarly, the education sector, another major employer of graduates, currently has nearly 200,000 vacancies unfilled.
Employment pressure on college graduates is concentrated around July
The number of employees in listed education companies has not improved.
The “naked resignation tribe” – those still observing and waiting – combined with the impending influx of new graduates, will further intensify the employment challenges in July.
Is youth unemployment the same as not being able to find a job?
It’s important to note that youth unemployment, particularly among college-educated youth, is not solely an economic issue. It’s a global concern that requires a wider social lens. An Industrial Securities research report titled “Behind the Rising Youth Unemployment Rate”, placed unemployment research in a global context, revealing a divergence from 2008-2018 where the overall unemployment rate declined while the youth unemployment rate increased.
From the above four reasons, youth unemployment is less about the “inability to find work” and more about a selective mindset, whereby young people choose not to work if they can’t find satisfactory employment. They may use this time to enhance their skills or pursue their true passions until they find better job opportunities.
Family wealth provides a safety net for this approach. Data from various countries show a positive correlation between above-average youth unemployment rates and per capita national wealth.
Once a country’s economy and household wealth reach a certain level, youth unemployment reflects the diversification of individual choices, moving away from the sole life goal of a “stable job” and no longer viewing work as life’s greatest purpose. It also embodies a widespread sentiment: young people fresh from university often don’t know what they truly want, so they should have as many choices as possible.
This is a long-standing trend unlikely to change soon. It will result in a persistent job market phenomenon: “youth unemployment coexisting with companies struggling to recruit young talent”. The latter highlights the issue of “insufficient labor participation rate”, a headache for developed nations.
Unemployment rate = Unemployed population / (Total Population * Labor participation rate)
Partial withdrawal from employment inflates the unemployed population; total withdrawal decreases the “labor participation rate”, which in turn leads to recruitment difficulties for companies. In just three years from 2020, China’s labor participation rate for this age group has dropped by 7 percentage points, reducing the labor force by 17%, without any significant university expansion in these three years. This decline in labor participation will significantly hamper future corporate investment and expansion, with repercussions as severe as unemployment. It will also severely impact real estate, marriage, relationships, and consumption.
Change in youth labor participation rate
In conclusion:
- The first quarter increase in youth unemployment, contrary to the overall trend, primarily reflects the structural issues in employing low-educated migrant workers, and this situation is improving.
- The root cause of high youth unemployment is not companies laying off staff or shutting down, but rather long-term job-seeking habits failing to adapt to current economic conditions. This problem will likely escalate in the future.
- Youth unemployment is not merely an economic issue, but a social and cultural phenomenon reflecting individual choice, and is likely to persist in the long term.
