Youth Employment and Entrepreneurship: Evidence and Open Questions. Marianne Bertrand University of Chicago

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1 Youth Employment and Entrepreneurship: Evidence and Open Questions Marianne Bertrand University of Chicago

2 The Youth Employment Challenge More than 300 million young people worldwide are not in employment, education, or training Official unemployment figures understate the problem Do not count underemployment Do not consider quality of employment Dire economic, social and political consequences 2

3 Supply-Side Explanations Skill mismatch Many firms report not being able to find workers with the required skills Hard skills, but also soft skills Importance of early childhood experience for skill accumulation Information imperfections Poor information about returns to education; returns to a specific vocational track, to a specific school Career expectations that are often not consistent with reality of the labor market 3

4 Social mismatch Supply-Side Issues Networks matter, but youth often do not have the appropriate connections Geographic mismatch Youth especially are often spatially disconnected from job opportunities because of where they live. Living in an impoverished area may send a bad signal to potential employers. High cost of transportation or relocation may prevent youth from improving their labor market prospects. 4

5 Demand-Side Issues Labor market regulation Hiring and firing costs, unions and other protection of incumbent workers, minimum wage Information asymmetries Hard to observe skills of new labor market entrants No prior employer, imperfect information about quality of schooling or training institutions, etc. Low productivity combined with high reservation wages Constraints to firm growth Product market regulation, bad management, corruption, etc 5

6 Possible Policy Responses Providing youth with the right skills Formal education, vocational education, apprenticeships, internships, soft skill training programs Information and labor market expectation management Improving matching between youths and jobs/improving intermediation Counseling, mentorship, job search assistance, referral and credential systems Fostering entrepreneurship and self-employment Ideation, business training, access to finance, access to mentors Subsidized employment and direct employment Wage subsidies, labor-intensive public works 6

7 Too Little Evidence to Draw Strong Policy Conclusions J-PAL Youth Initiative has an evidence review at Executive summary available at conference Updated version in progress Seeking implementing and funding partners for new rigorous evaluations in youth employment and entrepreneurship 7

8 Evidence: Skill Acquisition Strongest evidence is for interventions that improve school participation and quality, and for early investments in health and nutrition Most of the evaluated interventions focus on early childhood Early health: e.g. school-based deworming in Kenya had positive labor market effects ten years later (Baird et al. 2013) Early schooling (mainly primarily school): large literatures on conditional cash transfers, credit constraints, interventions to improve learning outcomes Critical periods in skill (hard and soft/cognitive and non-cognitive) acquisition 8

9 Evidence: Job Training Large literature in OECD and Latin America: Non-experimental; black-box Large literature evaluating U.S.-based job training programs Randomized Control Trials: Job Corps; JTPA Overall conclusion: modest effects, not cost-effective But substantive heterogeneity in findings across studies and populations: On-the-job training thought as more effective than classroom training Evaluations in Dominican Republic (Card et al. 2011), Colombia (Attanasio et al. 2011), Liberia (World Bank 2013) Private sector programs more effective than public sector programs Larger effects in less economically developed countries Women often appear to benefit more than men 9

10 Evidence: Job Training Appropriate training intensity/length Balanced against opportunity cost of participation Drop-out/retention Industry involvement Industry partners for on-the-job training component Insuring acquisition of market-relevant skills Provide targeted youth more easily accessible information about existing training options, and labor market impact of those programs. Information particularly important where information gap is largest: Rural youth, non-networked youth 10

11 Evidence: Matching Youth with Jobs Limited positive effects from counseling services In France, counseling had temporary positive effects but came at the expense of other job seekers (Crépon et al 2013) Little evidence from developing-country contexts Many open questions around: Channels of job search to focus on How to increase motivation and retention of youth How to improve selection and effort of caseworkers 11

12 Evidence: Labor Demand Increased firing costs lead to reductions in labor market turnover The effects disproportionately harm young people, since firms have less information about them à firms experiment too little with young workers Low levels of experience can interact with minimum wage laws to especially reduce demand for young workers. Few policies have been studied specifically for young workers, and implementing these policies is difficult. Employment subsidies targeted at youth appear to have positive short-run effects, but fade in the long run Effects of a 6-month subsidy in Jordan disappeared within 4 months of subsidy ending Also implementation problems, e.g. low redemption rates by firms in South Africa Displacement effects 12

13 Evidence: Direct Employment Nonrandomized literature suggests no (or negative) effects from public works, but selection is likely a big issue Better-identified studies find short-term benefits in Canada, India, Liberia But attractive policy for governments, so we need evidence on cost-benefit analysis and ways to improve public works Measuring potential benefits beyond labor market (e.g. incapacitation effects) Improving targeting (e.g. which youth are likely to benefit the most) Increasing value of work (e.g. meaningful work) Selection and motivation of mentors Leveraging the learning that happens in job experience (credentials, referrals, etc) 13

14 Evidence: Entrepreneurship Large literature on microfinance shows mixed and inconclusive results Maybe other constraints to enterprise growth Product design may need to be altered to meet needs of youth But cash grants seem more promising Group grants for training and business start-up increased assets, work hours, earnings among youth in Northern Uganda Grants combined with business skills training improved earnings in Chile and Uganda However, cash grant programs face targeting issues Not everybody will make an efficient use of the grant Not everybody has the skills to become an entrepreneur Alternative models (e.g. micro-franchising) 14