Assess the most appropriate policy options China could implement to tackle youth unemployment.
Many recent university graduates in China are struggling to find employment, even though industries such as electric vehicle production and scientific research are in need of skilled workers. Youth unemployment has been made worse by the prolonged lockdowns during the COVID-19 pandemic.
b. Assess the most appropriate policy options China could implement to tackle youth unemployment. [15]
Introduction
Youth unemployment has become a growing macroeconomic challenge in China, especially in the aftermath of prolonged COVID-19 lockdowns. While industries such as electric vehicle (EV) manufacturing and scientific innovation report shortages of skilled labour, many university graduates remain unemployed. This paradox points to a structural mismatch between the qualifications of graduates and the skills demanded in high-growth sectors. To effectively tackle this issue, China must consider both demand-side policies to stimulate job creation and supply-side measures to realign labour market skills with industry needs.
Expansionary demand management policies
One approach is to increase aggregate demand (AD) in the economy through expansionary fiscal or monetary policy. A higher level of economic activity encourages firms to produce more, which in turn raises their demand for labour—including among the youth.
The government could adopt expansionary fiscal policy by increasing its spending on infrastructure, green energy, or digital connectivity. Projects like high-speed rail expansion or clean energy development not only stimulate short-term demand but also lay the foundation for long-term productivity gains. Such spending raises G (government expenditure), a component of AD. A rightward shift of the AD curve from AD₀ to AD₁ would result in higher output (from Y₀ to Y₁) and national income, thus creating more job opportunities for graduates.
Similarly, reducing personal income tax can boost consumption (C), while cutting corporate taxes may incentivise firms to invest in capital and expand hiring. These tax cuts raise both C and I (investment), further stimulating aggregate demand. If successful, this would reduce cyclical unemployment, including among the youth.
However, the effectiveness of this approach in China may be limited by its high levels of local government debt. Many municipal governments have already borrowed heavily to finance past infrastructure projects. Additional borrowing could crowd out future investment and constrain fiscal flexibility. Moreover, not all sectors benefit equally from demand stimulus—if newly created jobs are not in areas that employ young, skilled workers, the impact on youth unemployment may be muted.
Alternatively, expansionary monetary policy, such as reducing the reserve requirement ratio (RRR) or cutting interest rates, can encourage borrowing and investment. However, this risks fuelling asset bubbles—especially in property markets—rather than employment in high-tech sectors, which tend to have longer gestation periods before hiring scales up.
Note: Students can opt to discuss expansionary monetary policy in detail as an alternative
Supply side policies to re-train workers
Since much of the youth unemployment in China appears to be structural—where the skills of workers do not match the jobs available—supply-side policies may be more appropriate and sustainable in the long term.
One key solution is education reform. The government could channel more funding towards university programs in fields aligned with China’s national development goals, such as EV technology, artificial intelligence (AI), and scientific R&D. This will help future cohorts of students enter the job market with relevant qualifications, reducing mismatches at the source.
For existing graduates, retraining and upskilling schemes can be implemented. The government could partner with firms in high-demand industries to offer short-term vocational programs, apprenticeships, or coding boot camps. For instance, graduates in oversaturated disciplines could be incentivised to attend condensed engineering or data science training programmes designed in collaboration with employers. These schemes could be further supported by subsidies or wage support, encouraging both trainees and firms to participate.
However, challenges remain. Graduates who have already invested years in a particular field may view retraining as a sunk cost or be reluctant to pivot careers. There is also the problem of time lag—even well-designed training programmes may take years to yield significant employment results. To address this, the government could offer job placement guarantees, stipends, or tax incentives for employers who hire retrained graduates.
Moreover, to enhance job matching in the short term, the government could improve labour market information systems, so that graduates are better informed about sectors with labour shortages. Online platforms, AI-driven career guidance, and nationwide job fairs can help smooth the transition from education to employment.
Conclusion
In conclusion, China’s youth unemployment problem is complex and rooted in both cyclical and structural issues. While expansionary fiscal and monetary policies can boost aggregate demand and generate employment in the short term, their effectiveness may be constrained by debt concerns and sectoral misalignment. Supply-side measures, such as educational reform, retraining schemes, and public-private partnerships, offer a more targeted and sustainable approach to tackling structural mismatches in the labour market. These policies, however, are not without cost or implementation challenges. Therefore, the most appropriate strategy is a balanced combination: short-term stimulus to ease current unemployment, and long-term structural reforms to align the supply of labour with the evolving needs of China's innovation-driven economy.
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