Paying Unemployed, Healthy Graduates

Let’s crunch some numbers.

So there is this story in the Standard, captioned thus:

“Jobless graduates to earn 15,000”.

My reaction to yet another half baked policy from our Jubilated administration is, unsurprisingly,

This idea actually verges on the absurd.

Let us begin from fundamentals.

If i understand this correctly, if you are an unemployed graduate, you will receive 15,000 iron men either in your bank account or MPesa to cushion you from the effects of your joblessness.

Absurd.

First of all the minimum wage, as of May 1 2013, is 13,674. Unemployed graduates will be paid 15,000. This means, the payoff is greater than the minimum wage. Which means:

1. Without doing anything, graduates will already make more money than folks on minimum wage
2. There is little incentive to get a job immediately
3. Only a foolish graduate will remain employed if they earn minimum wage.

Then, let us look at the numbers.

Data from a recent World Bank report shows that more than 800,000 people get into the job market each year. The huge jobless market competes against 50,000 employment positions in formal employment.

This means that of the 800,000 people, 50,000 will get formal employment, leaving 750,000 split between unemployment and informal employment.

If i was unable to find a job i have the following options

1. Get into self employment
2. Get into semi-formal & casual employment
3. No nothing & claim from government

Option 3 is now viable given that I will be paid 15,000 for doing nothing.

However, given the nature of humans I can guesstimate 90-95% of the 750,000 will take either option 2, option 3, or both.

Now, let us consider the worst case scenario.

Let us say 95% of these 750,000 claim the 15,000 (include those who only claim as well as those who claim and work on the side).

This is

750,000 * 0.95 = 712, 500

If each of these claim the 15,000 that works out to

712,500 * 15,000 = 10,687,500,000.00

That is 10 billion shillings. A month.

Spread over a year that will be

10,687,500,000.00 * 12 = 128,250,000,000.00

That is 128 billion shillings a year.

Chew on that.

Let us go on to consider the fact that nowhere has it been specified that these payments will begin with graduates of class of 2014. It is perfectly reasonable to assume that there are graduates going back all the way to say 2004 that have been unable to find jobs as of 2014.

Let us guesstimate a bit. Let us assume the number of graduates grows by 10% every year.

So let us project backwards to 2004

Let us then assume that the rate of unemployed graduates remains the same, which is about 0.63

So, the numbers going back to 2013 are as follows:

So, if we further guesstimate that 90% of them never found work, the numbers would look as follows

Remember we are gesstimating a worst case scenario.

So, potentially there are 4.8 million unemployed graduates going back all the way to 2004.

To pay them for the fiscal year of 2014 that would set us back

4,820,371 * 15,000 * 12 =

867,666,735,394.67

That’s 867 billion shillings, which is roughly 10 billion dollars in spending for 2013 on this program.

The entire budget for 2013-2014, by the by, is 1.45 trillion shillings. More than half will be used on this program, from our guesstimation.

So, it doesn’t take a rocket scientist to see that this policy is in no way shape or form, sustainable.

Finally, there are a number of other issues this program raises

1. We are paying able bodied, potentially productive society members to stay at home?
2. We are poisoning the pool of labour that earns below 15,000 a month
3. This program will be roundly abused
4. That 15,000 will likely be consumed on subsistence. In other words will probably not make any returns