# **I. Introduction**

Youth unemployment and underemployment across much of the developing world is extremely high. Two facts highlight the importance of youth’s labor in the world economy: 17 percent of the world’s population are youth (ages 16-24) and youth make up 40 percent of the world’s unemployed. In developing countries, where labor frequently encompasses informal self-employment and small-scale agriculture, youth also struggle with high underemployment (they are not able to work as much as they would like to) and low productivity. Up to two-thirds (60%) of the young population is underutilized in some developing economies, meaning that they are unemployed, in irregular employment – most likely in the informal sector, or neither in the labor force nor in education or training (ILO, 2013). Youth unemployment and underemployment not only slow down economic growth but also negatively impact crime rates (Fella and Gallipoli, 2007), depression rates (Frese and Mohr, 1987), substance abuse rates (Linn, Sandifer and Stein, 1985), and rates of social exclusion (Goldsmith, Veum and Darity, 1997).

Nepal is similarly affected by youth unemployment and underemployment. With a per capita income of US$700, Nepal is South Asia’s second poorest country (ahead of only Afghanistan). Helped by remittances, the proportion of the population falling below the national poverty line has declined in recent years from 31 percent in 2003-04 to 25 percent in 2011 (Central Bureau of Statistics 2011). One underlying factor of poverty in Nepal is the lack of employment opportunities, and a reliance on self-employment in the agriculture sector, which accounts for 61 percent of the total labor force (Nepal Living Standard Survey 2011). The unemployment rate for those aged 15-29 is 19.2 percent, compared to just 2.7 percent for people older than 15 (ILO 2014). Faced with these prospects, young Nepalese are compelled to consider migrating overseas in search of better opportunities.

Governments worldwide have responded by creating job training and placement services programs. In 2013, European Union (EU) launched an eight billion euro initiative aiming to provide every young European with a job, apprenticeship, or training within four months of becoming unemployed.<sup>3</sup> In Latin America, job training programs (referred to collectively as the “ _Jovenes_ ” programs) have been implemented since the early 2000s. To date, more than 700 youth employment programs in around 100 countries have been implemented and more than 80 percent of these programs offer some sort of skills training.<sup>4</sup> Despite the rapid expansion of skill-enhancement employment programs across the world and the long history of training programs’ evaluations,<sup>5</sup> debates about the causal impact of training based labor market policies on employment outcomes still persist. Based on US and European evidence, Card et al. (2009) review impacts of various training programs. Their analysis suggests that classroom and on-the-job training programs are not particularly effective in the short run, but have larger positive impacts after two years. They also find that youth programs, on average, tend to yield less positive impacts than untargeted programs. The evidence regarding impacts by gender is mixed. Kluve (2006) reviewed a number of

> 3See http://www.economist.com/news/leaders/21582006-german-led-plans-tackling-youth-unemployment-europe-are-far-too- <u>timid-guaranteed-fail</u> and http://www.dw.de/the-lost-generation-youth-unemployment-in-the-eu/a-16925070 4 See http://www.youth-employment-inventory.org/

> 5 See Heckman (1999) and many others, including randomized controlled trials, like the Job Training Partnership Act in the US.

1