DOI: 10.14457/tu.the.2016.622
title: Determinants of unemployment: characteristics and policy responses in Bhutan

description: This study tries to explore the determinants of unemployment by using the secondary cross sectional data set from the labor force survey of Bhutan, 2015. It also examines, separately the determinants of youth and adult unemployment. A comparative analysis is provided to give some differences in the determinants of youth and adult unemployment. Asset index is calculated by using the household physical capital component using principal component analysis to show the effect of household asset on the unemployment as household characteristics. The estimation is done for all, youth and adult sample using probit regression. The paper uses both from the demand and supply perspectives to get the determinants. From the supply side, reservation wage and different levels of education are used and from the supply side it is represented by employment types and skills. Other household characteristics include location, gender, youth, marital status, and migration. Household sizes and household assets are used for showing the household characteristics. From the overall youth and adult samples, both the variables from demand and supply show stronger effect on unemployment. From the supply side compared to reservation wage, different categories of education show stronger effect, although it is not significant for primary education.  It suggests that with higher education the probability of unemployment is higher in Bhutan as seen from the result with highest percentage point shown for the degree and masters. This typically reflects the mismatch of educational curriculum and skills and the requirement from the demand side. On the other hand it can be also a problem due to excess supply of educated people from the supply side and the economy not ready to take up those educated due to less innovation in the job market and slow economic growth and less job openings for skilled and educated individuals. When comparison was made amongst the three samples, youth unemployment had the strongest effect on unemployment.From the demand side, both employment type and skills show stronger effect on all unemployment samples.  Individuals seeking jobs in public sector are more prone to unemployment than those seeking jobs in the private sector. Skill is also one of the significant determinants of unemployment. The probability of becoming unemployed is more if an individual does not have any skills. It suggests that regardless of the educational qualification, acquirement of skills could lead to gainful employment.The results from other control variables such as gender, marital status, household size and household asset have stronger effect. A male, married or divorced, having an asset is less likely to be unemployed. However having bigger household size is more likely to be unemployed. The comparative analysis from the three samples indicates that all the determinants have stronger effect on youth sample with realistic results and stronger correlation in context to labor market in Bhutan. From the result it is not surprising to find education as a con for the labor market although theoretically with higher education, the accessibility to get job is much higher. To address the loopholes in the education system, policy interventions should focus on providing relevant curriculum and skills in consultation with the relevant stakeholders and policy makers. Although a lot of policy responses are intervened by the government to provide platform for the high prevalence of unemployment amongst the youth, yet it requires special and specific interventions such as support from entrepreneurial training and startup capital with subsided loan to attract young school leavers to become job inventor instead of job hunter.