Unleashing the Potential of Youth in International Trade

Youth unemployment, defined by the International Labour Organization (ILO) as persons aged 15-24 seeking but unable to find a job, is a global crisis. According to the ILO, more than 64 million youth are unemployed globally, and 145 million young workers live in poverty. To achieve the United Nations Sustainable Development Goal 8: Decent Work and Economic Growth, the reduction of youth unemployment is explicitly outlined in Targets 8.6 and 8.b. The International Trade Centre (ITC) estimates that within 15 years, over 600 million jobs will be needed to close the current youth unemployment gap and to provide opportunities for over 40 million new labour market entrants annually (comprising mostly youth).

A 2015 study by the Caribbean Development Bank (CDB) estimated the Caribbean’s youth unemployment rate to be around 25%, one of the highest in the world, and almost triple the region’s adult unemployment rate (8%). The study also revealed a 10% gender gap between young females (30%) and males (20%) experiencing unemployment, noting that overall, youth unemployment is costing the region on average 1.5% of its GDP annually. The ongoing economic fallout from COVID-19 will likely exacerbate these figures. Rising youth unemployment rates will also hinder the region’s sustainable development, especially in cases where their future knowledge and skills are not harnessed.

This SRC Trading Thoughts explores the ways in which increased youth participation in international trade can help to not only reduce youth unemployment, but improve the competitiveness of the region’s firms, especially the micro, small and medium-sized enterprises (MSMEs), in the global trade landscape. 

A Win-Win Solution

The trade-employment nexus is a double-edged sword. Loosely explained, trade can create new jobs especially in exporting industries, but at the same time can contribute to the elimination of existing jobs, especially in cases where imports displace the output of domestic firms. When countries continuously run trade deficits, this may produce a negative net job creation effect (i.e. more jobs are displaced by imports than created by exports). Following this logic, an increase in export opportunities could theoretically lead to job creation, as well as foreign exchange generation. However, a 2019 OECD special feature on Caribbean small states revealed that the region has been underperforming in trade compared to other developing countries, registering limited market diversification, low participation in value-added chains, and a lack of competitiveness. This sentiment was previously shared by McLean and Charles who in 2015 spoke about the region’s low utilization rates of trade agreements, “which led to no real increase in market penetration.” Perhaps, reducing youth unemployment and improving the region’s trade performance could be solved jointly.

MSMEs are the cornerstone of most economies. Estimates from a CDB report suggest that MSMEs represent 70-85% of firms in the Caribbean, and contribute significantly to GDP (60-70%) and employment (50%). Considered as the missing links for inclusive growth, MSMEs can directly integrate youth into existing value chains and export sectors by hiring them. This relationship not only benefits the newly employed young professional, but can also be advantageous for the firm. According to the ITC, “youth skills can help companies go global.” Their research indicated “a significant positive relationship between the level of human capital in SMEs and their tendency to internationalise, with empirical evidence supporting that higher levels of human capital are associated with higher export diversification rates.” Consider for example how youth equipped with soft skills, technical training and strong digital literacy can be assets for firms seeking to increase their export capacity or improve their global positioning. To conceptualize this, one only has to consider the ways in which COVID-19 has prioritized the importance of creativity, innovation, and digital skills – areas where the youth tend to be stronger compared to other demographics.

Job seeking youth can also be transformed into job creating ones through youth entrepreneurship. In fact, around 44% of the world’s entrepreneurs are between 18-35 years old, with studies showing that youth are 16 times more likely to start a business than those older than 35 based on an ITC report. Some research suggests that increased trade openness is pivotal in creating entrepreneurial opportunities, and a study by Dilanchiev and Sekreter in 2015 provided empirical evidence of a positive relationship between trade openness and entrepreneurship development in Georgia. Consider for example how young entrepreneurs driven by innovation and a desire to succeed can now leverage digital technologies to sell their products and services to the rest of the world. Access to larger customer bases and cheaper inputs as a result of free trade may very well be one of the keys to helping young people transform their creative ideas into successful businesses. Youth entrepreneurship can also help to bring about economic diversification. Consider the wide spectrum of sectors that youth entrepreneurs are involved in ranging from tech industries, to agriculture and agro-processing, to a variety of services – the list goes on. The ITC also found that “youth-led businesses catalyse economic activities in new, higher-growth sectors and activities.”

From Talk to Action

While theoretically youth can benefit from trade and trade can benefit from greater youth participation, this will not automatically occur. There are several youth-specific barriers constraining the participation of youth in trade and the associated benefits. The ITC identify these barriers as “power dynamics and social networks based on age, gender and ethnicity, lack of access to assets and finance, limited trade-related skills, limited access to market information, administrative and regulatory frameworks that do not favour young people, limited business networks, and limited youth-specific trade support, among other issues.”

Recognizing the potential that is being limited by the abovementioned constraints, it is important for the Caribbean and other developing regions to take youth involvement in international trade seriously. Some practical ways to do this include: 

1. Ongoing research to better understand how youth can better participate in and benefit from international trade. This research should be used to help mainstream youth into trade policy, similar to how gender is currently being incorporated into different trade agreements. Consider also recent developments in Africa where emphasis is being placed on making the African Continental Free Trade Area (AfCFTA) beneficial for youth. CARICOM can consider crafting similar innovative approaches for youth engagement in trade. At the individual level, CARICOM Member States must also increase their data collection efforts to provide more updated disaggregated data on youth (un)employment, to allow for the development of more evidence-based policies.  

• Moving towards competency-based frameworks for hiring rather than relying on perceived indicators of competence like educational levels or years of experience. Too often, highly skilled and capable youth are denied job opportunities due to excessive requirements such as non-managerial positions requiring 10-years plus experience. There is also a need for more meritorious hiring practises as opposed to nepotism.

• Increasing mobility of labour and skills under the CARICOM Skilled Nationals regime. In the recently released Draft Report of the CARICOM Commission on the Economy, the commissioners recommended offering the status of skilled national with rights to stay and work to any CARICOM national having more than two Caribbean Secondary Education Certificates or their equivalent. They noted that perhaps “this new rule would encourage more high school students to see obtaining a couple CSECs as a viable route to opportunity.”

• Reforming the education system to better prepare youth for the future of work by closing the skills mismatch gap. Educational institutions must meet the skills and knowledge demands of the labour market if a sustainable workforce is to be developed. Increasing importance must be placed on life-long learning approaches towards digital skills and other important areas. In fact, the World Economic Forum published a piece exploring how “the rights skills will be prized over academic qualifications alone in the future of work.”

• Developing more accessible and innovative finance options, especially for those youth which are interested in entrepreneurship activity and/or building export capacity. It is equally important that financial support be accompanied by technical support where possible, especially in cases where youth lack the required trade-related knowledge and skills. Once given the right tools, youth are capable of extraordinary results.

Certainly, these are just a few suggestions and many more exists. The important takeaway remains that if the region wants to truly unleash the potential of its youth, then it must seriously incorporate youth into its overall trade strategy and economic development.

Chelcee Brathwaite is a trade researcher with the Shridath Ramphal Centre for International Trade Law, Policy & Services of The University of the West Indies, Cave Hill. Learn more about the SRC at www.shridathramphalcentre.com.