# **I. Introduction**

Youth unemployment is a concern to policymakers and to the general population in Latin America. Although the rise in total unemployment rates in the region during the 1980s and 1990s led to levels that had not been seen for decades (IADB, 2004), the new level of youth unemployment rates were even more startling, ranging from 6% to 38%, often equaling twice or more of the level of the total unemployment rates. The common interpretation of this statistic is that young people have particular difficulty entering the labor market and spend longer periods in the unemployment state (ILO 2006), leading to irreversible damage in the future work life of these young people (World Bank 2006) and spawning policies to facilitate labor market entry of young people.<sup>1</sup> Further, youth inactivity (not in school, not looking for a job and out of the labor force) is assumed to be the source of other social issues, such as youth violence (World Bank, 2006; Freeman, 1999).

Youth unemployment rates in the OECD also exceed those of adults, but they are interpreted differently. While youth unemployment rates in Europe range from 7.8% to 23.5%, and the rates are double those of adults, the problem is not a difficulty in finding employment. Instead, the higher unemployment rates are attributed to frequent turnover early in the life cycle (Quintini, et. al. 2007) when young people are shopping around the labor market in an effort to identify a job that fits their preferences. In the United States, for example, a young person spends two years in each job, on average, before the age of 25 (Maloney 1999).

The objective of this paper is to test whether the high youth unemployment rates in Latin America signal difficulty in finding a job, a similar trend to the European model, or are a completely different process.<sup>2</sup> This paper uses panel data from three countries to better

> 1 For example, Brazil’s _Primeiro Emprego_ (First Job) program operates under the assumption that the main reason behind high youth unemployment rates is the pre-requisite of job experience to obtain a job, which is a particular issue for youth.  The program spent $10 million reais and may have created up to 9000 jobs, falling far short of its 260,000 goal (Doca et al, 2007).  Or, in 2006, Mexico launched its First Employment program that assumes that youth unemployment is due to lower productivity than employers are willing to hire.  The program was intended to alleviate the costs of hiring less skilled young workers by giving wage subsidies to employers who would hire young workers.  The program has been less than successful and the government is reconsidering the design of the program.

> 2 The European literature argues that the NEET – not in employment, education, or training – rate is a more relevant measure than the youth unemployment rate since it includes all youth who are not engaged in productive activities, as opposed to only those who declare that they are searching for employment (Ryan 2001).  While the measure may better capture the situation of youth, we do not consider it here since the unemployment concept is more familiar to, and of greater concern to, Latin American policymakers and the

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