Author: Awareness News

Nearly ten years have passed since the eurozone was on the brink of collapse. In a moment where enthusiasm for the euro and the European project has climbed, as Europeans find a strange form of solidarity in the face of Brexit, it is easy to forget that for a few months in 2011 and 2012, the eurozone seemed to be about to fall apart.

Although the onset was sudden, the fragilities that were exposed on the eurozone crisis went far from unnoticed until then. In fact, in the lead-up to the introduction of the euro, in 1999, many prominent economists, among them Milton Friedman, judged the move towards the single currency as a mistake. Friedman wrote that it would “exacerbate political tensions” as divergent economic shocks would lead to difficulties in setting a eurozone-wide monetary policy stance. History would only prove him right.

Arguably, the eurozone’s troubles started even before its conception, as credit conditions between its members converged in antecipation of the euro’s introduction. As can be seen in the graph below, this was reflected in the government bond yields: by 2001, Greece paid out the same interest as Germany on its newly-emitted debt. The implied probability of default for the two countries was the same.

Although this may seem preposterous with the benefit of hindsight, at the time this was not seen as such a concerning development. There was a belief that in general, governance across the eurozone was becoming more similar, with countries being subject to the same incentives.

A development that could be in particular singled out was the elimination of currency risk. As countries like Greece no longer had control over the currency their debt is denominated on, and the “No Bailout” clause of the Maastricht treaty prevented the ECB from financing any particular country’s debt, eurozone members could no longer pay off their debt resorting to the printing press. This somewhat reassured investors, as they assumed this would force governments in the single currency area to adopt responsible fiscal policies.

As credit conditions converged in the early years of the monetary union, there began an outflow of capital from the core of the euro area to the periphery. This can be seen from the graph below, which shows the current account balances of select eurozone countries in the period in question.

Source: WEO

Although it may seem surprising today, these flows of credit were contemporarily seen as success, as they were in accord with what economic theory predicted for convergence: the richer nations, where the returns on capital were lower, would lend to the poorer nations, which would catch up in terms of productivity as a result.

But any apparent real convergence was merely illusory, and these imbalances had perverse consequences.

Much of the investment in peripheral economies was squandered on non-traded sectors, such as construction, fueling housing booms, and government consumption. Since there was little build-up of export capacity, there was little hope of ever repaying external debt.

There was also a resulting widening of the competitiveness gap. As the credit boom in the peripheral countries of the eurozone resulted in an expansion of the construction industry, among others, excess demand for labour fueled above average wage inflation. Ironically, instead of promoting convergence among economies, the supposedly healthy imbalances were actually accentuating existing differences.

At this point, it might be important to note that unlike what is commonly believed, the core root of the crisis was not necessarily public debt. In fact, if we look at the figure above, we can see that in 2007 Ireland and Spain’s public debt-to-GDP ratios were actually far below Germany’s, which stood at 63.7%.

These two countries, however, saw instead excessive accumulation of private debt. This materialized in the form of excessive bank lending: for example, Irish banks had assets worth seven times the GDP of Ireland in 2007. This private debt also fueled housing bubbles, which made public debt ratios look better than the underlying conditions were, as significant chunks of GDP were based on highly speculative construction. These liabilities later overflowed into the governments’ balance sheets, as banks went bankrupt and had to be propped up by sovereigns.

In light of these excesses, it was a matter of time until all this leverage unraveled. In October 2009, the new Greek government revealed that the government deficit was much higher than previously thought. While the draft target set by the European Commission in 2008 for 2009 was a deficit of 1.8% of GDP, the final figure ended up being 15.6% of GDP. At this point, financial markets understandably started to panic about Greece’s ability to pay off its debt. The Greek spread over the German Bund started to climb.

Greece, in a last ditch attempt to save itself from ruin, agressively engaged in austerity measures, cutting spending and raising taxes, but this worked against its purpose. As the fiscal stance became more contractionary, economic growth, already feeble, slowed, and creditors started losing faith in Greece’s ability to repay. The spread kept getting higher, and the first bailout became inevitable.

But would have avoiding austerity saved Greece? It is all too easy to don a pair of rose-tinted glasses and argue that avoiding austerity would have kept growth in Greece steady and led to a sustainable debt position. But the counterfactual is not available, and it is as easy to argue that avoiding a more restrictive fiscal stance would have equally worried investors, who would be concerned about a lack of concrete steps towards debt sustainability. Eventually this would also prevent Greece from rolling over its public debt.

Restructuring the debt would also work only to a point. A significant amount of Greek debt was held by banks of other faltering eurozone countries, such as Italy and Spain, and debt relief could have brought over the edge those already fragile banking systems. Furthermore, a third of Greek public debt was held domestically, and as such a restructuring would also lead to demand-side drags on the economy.

Greece’s membership of the eurozone was critical in how the crisis escalated. If Greece still had control over its currency, it could simply devalue it, lightening the real burden of debt and bringing its current balance closer to equilibrium. Crucially, Greece also had no lender of last resort, as the ECB was bound by the Maastricht “No Bailout” clause. If the introduction of the euro were accompanied by a greater degree of federalism, this might not have been a problem, as there would be income transfers from the core of the eurozone through the action of automatic stabilisers.

Fearing the eurozone would unravel if nothing was done, the EU called on the IMF in order to provide for a first bailout of Greece in early 2010. While there were doubts from the IMF that the resulting arrangement was sustainable, it provided €30bn of financing, with other eurozone members providing a further €80bn.

As this happened in Greece, investors started to worry about the credit they were extending to other periphery countries. Their reluctance to extend financing translated into a rise in other countries’ borrowing costs. This was the so-called “sudden stop” that brought the eurozone to a halt. Portugal and Ireland soon needed bailouts of their own. Later, private sector involvement in subsequent bailouts made things even worse, as the losses forced on private bondholders increased the intensity of the capital flight.

At the core of the market panic was an apparent self-fulfilling crisis, with two internally consistent equilibriums. In the first “good” equilibrium, bondholders believe debt is sustainable, and therefore interest payments remain low, debt being then manageable. In a second “bad” equilibrium, bondholders start to doubt the sovereign’s ability  to repay, and escalating rises in interest payments might mean debt is no longer sustainable. In traditional economies, a lender of last resort, the central bank, which is always willing to buy the sovereign’s debt, ensures the “good” equilibrium is the one to prevail. In the eurozone the “No Bailout” clause prevented this.

Equally relevant was a mechanism known as the “bank-sovereign doom loop”, which was crucial in the spread of the crisis to countries that had low public debt but large current account imbalances. Through this process, illustrated in the following diagram, failing banks have to be bailed out by the government, which leads to a deterioration of its fiscal position. As domestic banks tend to hold a disproportionate amount of home country bonds, this has a negative impact on their balance sheet. Gradually, both the situation of the country’s financial system and that of its sovereign become precarious. Concerningly, this issue has hardly been solved in the wake of the crisis, even though it could be solved by the simple introduction of a joint eurozone bond, as core countries complain of moral hazard problems.

As the spreads of even supposedly safe countries like Belgium and France began to climb precipitously, Mario Draghi decided to take an unconventional turn in terms of policy. Pledging to do “whatever it takes to save the euro”, he announced the Outright Monetary Transactions (OMT) program, which allowed the ECB to purchase government bonds of countries in distress. The program implied a very strict conditionality, with any countries joining the program being required to enact domestic reforms. This was done to allay concerns by core economies that peripheric countries would be allowed to ‘free-ride’ on the ECB, avoiding doing painful reforms. Even then, the program was legally challenged in the German constitutional court, as it was believed to breach the “No Bailout” clause. Thankfully, this was unsuccessful.

Ultimately, the true testament to the OMT’s success is that it has never been used. As soon as it was announced (its announcement coincided with the “whatever it takes” speech; see graph), spreads over the eurozone area started to drop. This ended up marking the beginning of the long road to recovery.

Nonetheless, the cleavages both exposed and exacerbated by the crisis seem to be here to stay, as Friedman ominously predicted more than two decades ago. Given the recent slowdown in eurozone growth, Draghi pushed the ECB towards restarting Quantitative Easing (QE), its large-scale program of liquidity injection into the bond market. The same core economies that long have run current account surpluses have opposed the move, citing not-so-new concerns on easy money being a deterrent of reform in southern economies.

The restart of the QE program also brings new problems, as the ECB already holds significant portions of debt of eurozone countries, and is required to hold less than 33% of each. Although increasing the limit is a possibility, it might put the ECB on the difficult position of being a majority debtholder of eurozone governments. This could be easily solved if countries like Germany and Netherlands, where the ECB is closest to its imposed limits due to their low amount of debt, used the fiscal space they have available to provide a much-needed stimulus for the eurozone. But they seem loth to do so. Only recently, Annegret Kramp-Karrenbauer, Germany’s apparent chancellor-in-waiting, defended the country’s commitment to balanced budgets even in the face of an economic slowdown.

With Draghi now leaving his post, and Lagarde taking over, it is all too easy to hail this as a watershed moment where the eurozone finally casts off any lingering reminder of the crisis. But this would be a mistake. Europe’s economic dysfunction seems here to stay, and the shadow of the crisis will long hang over Europe.

This article was written in partnership with the Nova Investment Club.

It was not that long ago when development economics was underrated and not recognised by the classical economists as a worth studying field. The issue was that the macroeconomists who were interested about these subjects always focused on one specific country, such as South Korea, and tried to understand what had driven it to outperform other economies. Meaning that they acknowledged what led to each countries’ development, but they could not implement that in another place, due to the fact that the conditions in each case study were unique and intrinsic to the countries’ features, so they could not be replicated on another location.

This has changed since figures like Esther Duflo, Michael Kremer or Abhjit Banerjee stranded their position on the world of development economics.

Previous studies on development economics had a major flaw that prevented them from discovering the most efficient treatments to ultimately eradicate poverty, across all fields, such as health, education, corruption, among others. By studying a specific countries’ case, economists were never fully able to state whether an intervention had a causal effect on the combat against poverty or not, even if it such relation was heavily supported by economic theory. The reason behind that is the lack of a counterfactual effect – economists were incapable of observing the outcome in the case that individuals had not benefited from the intervention previously made. Without directly observing a counterfactual effect, conclusions on previous studies about economic research were most likely biased from previous economic theory already conducted, and no causal effect could be stated.

Aiming to overcome this handicap in economic research, these economists borrowed a key tool from clinical medicine: the Randomized Controlled Trial (RCTs).

In order to be able to conduct causal inference, they took a brand new approach to economic research that, very simply put, was characterized by the following:

• The creation of a treatment/intervention that, supported by economic theory and empirical evidence, is believed to be able to diminish poverty in a certain field

• The collection of a random sample within the same field, to which half, randomly assigned, would benefit from the treatment – the Treatment Group -, whereas the other half would perform as the Control Group, not receiving any treatment.

Basically, the creation of this control/base group of individuals was what ultimately able these economists to be Nobel Prize winners. Having a Control Group randomly assigned enables economists to observe the so wanted counterfactual effect of an intervention, giving their studies enough strength to conduct causal inference, and this was crucial for the advancements on development economics discoveries.

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“The Miracle of Microfinance? Evidence from a Randomized Evaluation” was a study conducted by Duflo, Banerjee, (two out of the three Nobel Prize Winners), Glennerster & Kinnan (2013) that perfectly exhibits the power of RCTs.

Microfinance has created big enthusiasm and hope for fast poverty eradication. Through the lending of microloans, it was believed that small enterprises would be able to grow and expand, and therefore generate welfare at an individual level in the developing world. However, the above study concluded that microcredit generated no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. This study was conducted on a sample of 104 slums in India, where half of it was randomly selected to benefit from a loan product from a particular microfinance institution, whereas the other half received nothing. As such, given the strength of an RCT, it was enough to ultimately refute economic theory, proving that, in reality, microfinance has no impact at all. This study is just one, among many others, that serves as an example to explain the strength that RCTs have when stating economic conclusions and results.

As such, by conducting RCTs, we are treating development economics exactly as the science it actually is. When in a sample of mice, half of it receives a drug whereas the other receives nothing, with the goal of discovering cures for illnesses, scientists and doctors are using RCTs. However, one might think: is it ethical to treat individuals, or small enterprises, merely as guinea pigs from a scientific experience?

Accordingly, many authors and researchers have been criticizing the RCTs approach to conduct economic research. One of the first studies using RCTs was done in Kenya in the 1990s, whose goal was to increase school attendance through the eradication of parasitic worms in children. Despite the great results this paper generated, one cannot forget that these results came at the expense of many children not benefiting from free deworming pills, only because they were unlucky enough to be in one of the schools which were part of the Control Group of the experiment. As such, it is fair to argue that ethics should have a higher role in economic research, and that the poorest cannot be seen from economic researchers merely as experimental subjects from their experiments.

However, the flip side of the coin regards the effectiveness of RCTs. The strength of its results is enough to compensate the unlucky parties of the Control Groups, since in the long-run the Control Group will also be better due to the intervention. They claim that, only because of the results of RCTs, the lives of the worst-off people around the world will be improved.

Nevertheless, despite the divergence of opinions that RCTs are creating, there is no doubt that this approach is truly disrupting development economics research, and the world in general. And the fact that these three development economists were finally recognised by the community is a sign of the changing times we are living.

Central banks are today some of the most important institutions in the economy, charged with regulating interest rates and the overall flow of money supply. This makes them responsible for a nation, or group of nations, monetary policy. Normally, since they have this responsibility central banks are charged with keeping inflation and prices stable, but some reserve banks have added duties, such as the FED which also has to keep unemployment low.

In order for central banks to pursue these objectives it’s generally assumed that they should be independent from political power and decision making. Nonetheless, lately central banks have seen their autonomy being challenged, such in: the US, where Donald Trump has repeatedly criticized the FED’s actions, Modi’s India where the governor resigned in December over clashes with the PJP’s leader, Turkey in which Erdogan fired the governor for allegedly refusing to lower interest rates or Argentina where Mauricio Macri’s government is hoping that the central bank will issue more pesos.

But why were central banks given more autonomy in the first place?

To answer this, we first have to go back to the 1960s and 70s when reserve banks where far more influenced or out-right controlled by government policy. Around this time, economists and specially politicians believed that you could lower unemployment by increasing inflation, a theory backed by the Philips Curve, so general wisdom demanded central banks to increase money supply to curb unemployment. This theory made it irresistible for politicians to pressure central banks to stimulate the economy ahead of an election, so as to boost their chances of winning. Everyone knows that an incumbent leader is more popular with a low unemployment rate and a bustling economy. This was what exactly happened with Richard Nixon ahead of the 1972 election in which he pressured the FED’s chairman, at the time, to increase the money supply. However, this decision is largely seen as having left the US economy vulnerable to the great increase in inflation the world saw throughout the 70s that was largely caused by the oil embargo. Nonetheless, the monetary paradigm of the time is widely seen as a reason for the prolonged inflation bubble.

It was from this point on, that the world started coming to the conclusion that giving independence to central banks could largely be a positive outcome. From the graph below, we can see that countries such as Germany and Switzerland, home to very independent central banks had lower inflation rates than countries such as the US or UK where the reserve banks were not as independent.

After all it makes sense that central banks should be independent, since chairman’s have a long-run view of the economy instead of just the next election year cycle. It’s much harder for politicians to pursue unpopular measures that might bring short term difficulties, but they are necessary to assure the overall health of the economy in the long run. To raise interest rates or cut budget deficits in an election year, are examples of those unpopular measures. Given this, the world gradually moved in the direction of giving more autonomy to central banks in the 1980s and 90s, and the results have been clear. Inflation has been far more stable as well as interest rates. This in turn has helped consumers and businesses by not having to adapt to new prices and interest rates in very short spans of time.

Times of change

Nevertheless, the 2008 global recession has changed the view of many with regards to central bank independence. Many believe that central bankers don’t have necessarily the public interest on their minds and that their actions are too secretive, pointing to the fact that they are not elected and are autonomous from public branches, and thus some believe they should have more oversight. Others point out that too much reserve bank’s independence may cause a contradiction between monetary policy and fiscal policy, which is a government responsibility. Which in turn could destabilize the economy and make it more difficult to wither recessions. Moreover, the general rise in populism has also put these institutions under threat of attacks both by the right in the case of Donald Trump and by the left, in the case of Jeremy Corbyn which criticizes the Bank of England’s actions and wants to use it as a tool to finance bigger public investment.

With this, central banks dependence or attempts to curb their autonomy, have become a good indicator of authoritarian like regimes. One such example is Venezuela, where inflation has reached 10 000 000%. Another one is Zimbabwe where inflation reached 89.7 sextillion percent year-on-year in mid-November of 2008. So, there is a tendency for authoritarian regimes to attack central bank autonomy and make reckless decisions with regards to monetary policy.

All in all, one thing is clear, central banks are going to have to change the way they operate and adapt it to the new reality. Even top figures, such as Mario Draghi, recognize that monetary policy and, therefore, central banks have to act in a more coordinated manner with fiscal policy (government) in order to allow for a more cohesive strategy when dealing with the economy and achieving more stability. The world is changing and the central banks’ operation process is too.

Once mistaken for the janitor by an employee’s parent, Alibaba Group’s CEO Daniel Zhang will be replacing Jack Ma as chairman of the company. What are the prospects?

In 1999, the biggest e-commerce and retail company in the world was created in an apartment in Hangzhou by a team of 18 individuals. One of the co-founders, Jack Ma (7.8% stake), then became the enterprise’s CEO and chairman and, consecutively, China’s wealthiest man, with a net worth of around US$42 billion. On September 2018, Mr. Ma publicly announced that he would be stepping down as Alibaba’s chairman and, one year after, on the 10th of the same month, the role of executive chair was passed on to Daniel Zhang. But what legacy did Jack Ma leave behind?

The Alibaba Group provides business-to-business – B2B – (Alibaba.com), business-to-consumer – B2C (Tmall) and consumer-to-consumer – C2C – (Taobao) sales services. It is considered the largest e-commerce company, with a gross merchandise value in 2018 of US$854 billion, outperforming Amazon3 and eBay4 combined. Furthermore, the company had the highest initial public offering (IPO) in history, with an astonishing value of US$228 billion when Alibaba raised more shares shortly after getting listed in the stock market5. As of 10th September 2019, when Jack Ma resigned from his position, the Alibaba Group had a market cap of US$455.6 billion.

It looks as if Daniel Zhang has some really big shoes to fill, and the Chinese situation is very precarious at the moment, with its economic growth slowing down (6.2% yearly growth rate, the lowest since 1992), the trade war with the US and due to the protests in Hong Kong, that have already resulted in delay of a stock offering that could have raised US$20 billion for the company.

However, Mr. Zhang has proven so far to be extremely competent for this task. He joined the Alibaba Group in 2007 as CFO of Taobao (comparable to eBay) that, despite being the most visited website at the time, was suffering from severe losses and fraudulent sellers. In the following year, he was put in charge of the development of Tmall (comparable to Amazon) and, in order to attract brand names to this subsidiary of Alibaba, not only did he provide top merchants with relevant information regarding their buyers – who was buying what, area of residence, which ads were more effective – but he also installed a more complex security system concerning copycats and, as a result, sales rocketed. Daniel Zhang was also responsible for the creation of Singles’ Day, which is an annual deals-fest whose sales amounted to US$31 billion last year alone, outdoing the values of Black Friday in the USA.

And it does not stop here: as a chairman, Daniel Zhang has revealed initiatives to place Alibaba in fields such as finance, healthcare, films and music. He has stated in an interview with Bloomberg:

“Every business has a life cycle. You have to be innovative and create new businesses with new technology, with a new model. Then that can make our entire business sustainable. We always say that we want to build a sustainable, long-term business. But most of it is not evergreen. I strongly believe that if we don’t kill our existing business, someone else will. So I’d rather see our new business kill our existing business.”

Of many projects that Zhang has been developing, however, there is one remarkably ambitious and innovative, Freshippo. This is a start-up of the Alibaba Group that would unite the concept of a grocery store, a restaurant and a delivery app all together, along with the aid of robotics and facial recognition. With 150 stores across 17 cities, Daniel Zhang states that Alibaba is determined to take 50% of the food delivery sector. Moreover, on the 25th of this month, the enterprise unveiled its first chip developed for artificial intelligence, becoming the most recent non-traditional chipmaker company to develop its own AI hardware.

The future, however, is uncertain, as many start-ups strive to compete for leadership of the food delivery market, and expansion has been challenging. Alibaba has already sunk US$4 billion in attempts at expanding to Southeast Asia and Donald Trump’s administration is considering the banning of Chinese companies listing in the US as a move in the trade war, which will greatly impact Alibaba’s shares, that have gone down by 4% since the news were released.

In order to analyse the outlook for Alibaba, it is important to consider its current presence in global markets while comparing it to China, its main source of revenue. One of Jack Ma’s long-term goals was to have half of the revenue coming from outside of China, but it is clear that the company is far from independent of the Chinese market provided that, in this year, its e-commerce revenues from international commerce only amounted to a mere 10% of Alibaba’s total revenues. However, both its subsidiaries Taobao and Tmall are clear leaders in the overall global markets when comparing gross merchandise value.

All things considered, although the leadership of Daniel Zhang has been looking promising for the company, there are many key factors that are weighing Alibaba Group down, so large global expansion opportunities might be jeopardized by several adversities. The question that lingers is: Will Daniel Zhang leave triumphant or was he at the right place at the wrong time?

Finland, Norway, Sweden, all these countries are seen as the dream country to raise your children, but have you ever heard about Switzerland? I’m not talking about its chocolate, inventors or its capability to shelter its entire human population in nuclear fallout shelters in the event of a nuclear war; in fact, what is more intriguing it’s their education system and the possibility of it being strongly related to the Swiss economy.

Swiss Education System in a Nutshell

The Swiss educational system is decentralized, and the cantons (member states of the Swiss Confederation) are responsible for providing educational services. Therefore, some content may vary significantly from one canton to another. Nevertheless, the general structure consists of eleven years of free compulsory education. Now, here’s what’s peculiar: at the end of the primary cycle (6th grade), students make some theoretical and psychotechnical tests in order to be selected to different schools according to their specific characteristics, competences and psychotechnical trends. Students with lower grades or with more practical competences go to Oberstuf, a school more vocationally oriented; depending on their success as students, they can choose the area they want to study and take a 3-year course in a dual system – 1 day per week having theoretical classes and 4 days doing an internship. Everyone can take as many as courses they want to. On the other hand, students with the best grades tend to go to Gymnasium, ending up with more theoretical and intellectually demanding programs so they are well prepared for tertiary education.

Now, while this intervention and channeling of students from an early age may seem discriminatory, cruel and rushed, in fact, it may be a key factor for the Swiss Economy success. It is also interesting and useful to compare the performance of Switzerland with another European country. In order to do so, Portugal was chosen.

Note: The analysis will be focused on the population with upper secondary and post-secondary education. All statistical data was provided by PORDATA.

Key indicators

I. Early Leavers from Education

Concerning the early leavers from education and training between 18 and 24 years old, both countries show a significant decrease. However, Portugal has made a bigger effort on this, by lowering the rate of 40,1% in 1996 to 12,6%, in 2017. Switzerland, on the other hand, already had a very low rate of early leavers in 1996 (6,1%), even though it also got lower over the years, reaching a rate of 4,5%.

In both countries if students are having low academic performance, school is in charge of talking to their parents. However, in Switzerland they give a special attention to the discouraged students by having social workers that make sure they do not drop out easily of the courses: if they don’t like the course, they’re immediately accompanied in order to find the course that fits them better. This may explain the low rate of early leavers in Switzerland when compared to Portugal.

II. Population with upper secondary and post-secondary non-tertiary education 

The part of population with upper secondary and post-secondary non-tertiary education, in percentage of the population between 25 and 60 years old, increased in Portugal and decreased in Switzerland. However Switzerland’s values are still very high comparing to Portugal’s. In Portugal, it started with a 10,8%, in the first year of analysis, and had a 23,9%, in 2017. However, Switzerland shows significantly bigger values in these periods, having 61,4% in 1996 and 42,5% in 2017, twice Portugal’s rate.

In Switzerland, as you finish any vocational course you are considered specialized in that area, having a certificate that is highly valued by the companies. This is an incentive for students who want to take these courses. Unfortunately, in Portugal, professional courses are not as valued by neither the students nor the employers – they’re seen as an alternative way of ending compulsory education rather than being a way of getting instructed in a future viable employment. The exception seems to be tourism and hospitality schools, which have been rated as good and reliable vocational schools. In the end, this is a possible reason for this difference between the rates. This said, a lot of firms find themselves constrained in their business growth due to the lack of qualified workers in the industrial area, such as electricians, mechanics or even locksmiths.

III. Unemployment rate by level of education

 When analysing the unemployment rates (considering population from 15 to 74 years) in these two countries, it’s clear that they are both increasing, with Portugal at a higher pace than Switzerland. Between 1996 and 2017, Portugal went from a rate of 7,4% to 8,87% while Switzerland went from 3,7% to 4,8%, keeping it substantially low.

 When going through the unemployment rate by levels of education, one can observe that this rate is higher for people with lower education, referring to 2017, in both countries. However, concerning post-secondary non-tertiary education, there is a huge difference between the two countries:

None or Primary Education:

• Portugal: 9,8

• Swiss: 8,3

Post-secondary Non-tertiary Education:

• Portugal: 9,9

• Swiss: 4,7

Tertiary Education:

• Portugal: 6,5

• Swiss: 3,8

The lower rate of Switzerland may be explained not only by the facts supra mentioned but also due to the fact that at the end of the vocational formations, most of the students are automatically hired by the firms where they worked during the 3-year internship, as they already have confidence in their abilities and commitment.

Furthermore, this education system reflects the real needs of the country: they change the number of course vacancies depending on the demand and supply of the labor market. This way, one could say that the government tries to maximize the efficiency between unemployment rate and the lack of people in some sectors. This is one of the strongest points where any kind of relation between the existing courses in the education system and the economy of this country can be inferred.

Wrapping up

 Swiss companies do not need to waste their main resources – time and money – in workers’ training – the employees already know exactly what to do and how they should behave within the company. This is one of the most impactful advantages of the Swiss system. Firms obtain young and qualified workforce and schools obtain a high level of employability in their courses, while students get a certificated course and will find a job much more easily. Besides being excellent for the macroeconomics of the country, it also allows everyone in the country to have professional and inclusion opportunities.

Switzerland is a country that regards knowledge and education as a key of its development.

Mariana Inglês Vladyslava Shturma