Introduction
Youth unemployment has become a pressing issue in China, particularly after the disruptions of the COVID-19 pandemic. Despite a shortage of skilled workers in sectors such as electric vehicles and scientific innovation, a large number of university graduates remain unemployed, which suggests a mismatch between graduates' skills and the demands of emerging industries. To address this, a combination of demand-side and supply-side policy measures can be considered.
Expansionary demand management policies
One approach is expansionary demand management, such as expansionary fiscal or monetary policy, which aims to boost overall demand and so raise production and job creation. The government could use expansionary fiscal policy by increasing spending on infrastructure or reducing personal and corporate income taxes. Higher spending on large-scale infrastructure such as transport or green energy raises aggregate demand; since consumption, investment and government spending are components of aggregate demand, an increase in any of them shifts aggregate demand rightward, raising output. As output rises, firms need more labour, helping to absorb some of the unemployed youth. Lower income taxes can stimulate consumer spending, and corporate tax cuts can encourage firms to invest and hire.
However, this approach has limits in China. National debt has risen significantly in recent years, which may restrict the fiscal space for large-scale stimulus, and over-reliance on fiscal stimulus could worsen the debt burden and crowd out future productive investment.
Supply-side policies to retrain workers
Because the unemployment problem is more structural than cyclical, supply-side policies that tackle the skills mismatch are likely to be more effective in the long term. Structural unemployment occurs when workers' skills do not match the demands of the labour market, and the shortage of skilled workers in emerging hard-tech sectors such as electric vehicles and scientific innovation points to a need for targeted reskilling and education reform. The government could increase funding for university programmes in emerging industries such as electric vehicles, artificial intelligence and scientific research, encouraging more youths to pursue in-demand fields and reducing future structural unemployment. For recent graduates, it could subsidise retraining programmes that equip them with relevant skills, for example by partnering with technology firms to offer short courses or apprenticeships that help graduates transition into hard-tech roles.
However, these policies are costly and slow, as investment in education and reskilling often takes several years to show results in the labour market. Recent graduates may also be reluctant to undertake further training, viewing it as a sunk cost, so convincing young workers to switch fields may require financial incentives or guaranteed job placements on completion.
Evaluative conclusion
To reduce youth unemployment in China, a combination of demand-side and supply-side policies is needed. Expansionary demand management can stimulate activity and create jobs in the short run, but China's high national debt limits the scope for it. In the long term, supply-side policies that reskill workers and align education with emerging industries are crucial for addressing structural unemployment. Although they take time and may meet resistance from graduates, they offer the more sustainable solution and the most appropriate way to prepare China's labour force for the future economy.