Should I stay or should I go? Career paths for Young Workers in Latin America

For years, governments across Latin America have focused on improving labor market outcomes for young workers. To achieve this goal, governments have tried a variety of policy tools including state-funded employment services, job training programs, subsidized internships and the continued expansion of tertiary education (Vezza 2014, Urzua et al. 2016). However, the existing evidence on the patterns of earnings growth for young workers and the factors behind this growth might challenge this approach. Are public policies in the region really confronting the needs of the new cohorts of workers?

To answer this question, one must understand what labor markets demand from young people. Consider two scenarios: in the first, labor markets value more the workers who accumulate years of experience (they demand human capital that can be transferred across different firms). In the second, labor markets value more the workers with firm-specific capital, those who accumulate more years of tenure. Which scenario do we face? Is tenure more important than experience or vice versa?

All in all, our results —large returns to experience in Chile and to tenure in Brazil—, highlight the importance of not only the first few years of the career of young workers but also how labor market regulations can shape their progressions. In light of our findings, the answer to the question that increasingly concerns Latin American governments —what is the best strategy for improving labor market outcomes among young workers? — must be considered within each country’s labor market institutional frame. One policy does not fit all.

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