Youth Underemployment in the Western Balkans: A Multidimensional Approach

ABSTRACT

When a worker works at most 35 hours a week and wants to work more, he is said to be underemployed. In addition, when his skills are underutilized, there is uncertainty about the job, he is underpaid and there is lack of formal working conditions, he is said to be multidimensionally underemployed. This paper analyzes youth underemployment multidimensionality and its effect on wages in three Western Balkan countries: North Macedonia, Serbia, and Montenegro. Our empirical approach controls for sample-selection bias and endogeneity through internally-generated instruments. The findings suggest that intensifying underemployment along the multidimensional scale reduces wage on average by 7.6%. The effect is the strongest in North Macedonia, followed by Montenegro and Serbia.

KEYWORDS:

• Youth
• underemployment
• wages
• Western Balkan countries

JEL classification:

• J24
• J64

Acknowledgments

This research work was carried out with financial and scientific support from the Partnership for Economic Policy (PEP) www.pep-net.org with funding from the Department for International Development (DFID) of the United Kingdom (or UK Aid), and the Government of Canada through the International Development Research Center (IDRC). The authors are grateful to Luca Tiberti and Marjan Petreski for the valuable comments and suggestions, as well as to Ivan Vchkov for technical support and guidance.

Disclosure Statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1. Ideally, the job offer should be declined if the wage offer is below the reservation wage. However, the incidence of persons accepting wage offers below their reservation wage is non-zero, particularly among youth, which may be due to various reasons like insufficient information on market wages (given no work/searching experience), pressure by parents to accept any job, greater likelihood of considering a job as temporary etc.

2. In the Macedonian context, this is less likely to be the case, as Petreski et al. (forthcoming 2020) find no role for the demand factors in reservation wage shaping, for the whole population, based on the Labor Force Survey. This may be further the case for youth, who at the onset of their career have less information on labor market conditions and usually shop around until finding a stable job, all of which attenuates any correlation between the reservation and market wages.

Additional information

Funding

This work was supported by the Partnership for Economic Policy (PEP).

Notes on contributors

Blagica Petreski

Blagica Petreski is the founder, Chief Economist (CEO) of Finance Think. Her research interest involves an array of development topics like poverty, unemployment and gender inequalities. She is a committed advocate for better economic policies as well actively engaged in shaping the public debate on economic issues in the country and the region. Blagica is an Assistant Professor at the University American College Skopje, teaching Public Economic Policy. She has a PhD in Economics from the University Ss. Cyril and Methodius in Skopje, which included research stays at CERGE-EI Prague and the Slovak Academy of Sciences. She is also an alumnus of Young Transatlantic Innovative Leaders Initiative. Blagica received the Award for a Young Researcher of the year granted by the National Bank of Macedonia, as well the Award for best paper on risks and insurance by the Insurance Supervision Agency. Published widely, including 7 papers in prominent peer-reviewed journals listed on the Web of Science.

Jorge Dávalos

Jorge Dávalos research focuses on the application of statistical and quantitative methods to impact evaluation, trade and labour market outcomes in developing countries and agricultural economics. His research has been published in international peer reviewed scientific journals. He was an econometrician at ILO’s Regional Office for Latin America. He was also involved in labour and quantitative finance consultancy projects with the UN (ILO), World Bank, ‘Société de Gestion Financière et Commercial’ (Nyon, Switzerland) and the Peruvian Vice-Ministry. Jorge also collaborates with PEPNetwork by mentoring research projects in developing countries. He has delivered international trainings on microeconometrics and employment projection models (in English and French). Jorge holds a Ph.D. in econometrics from the University of Geneva (Switzerland).

Despina Tumanoska

Despina Tumanoska is a PhD candidate in Economics and an MSc graduate from the University American College Skopje. In 2012, she won the Annual award for Young Researcher conferred by the National Bank of the Republic of Macedonia. She actively publishes, including 3 papers in journals indexed on the Web of Science. Despina is a member of the Executive Board and a Program Coordinator at Finance Think. Her research interest involves issues like macroeconomic policies, unemployment, sectoral economic policies, applied econometrics and the like.