Youth unemployment during economic shocks: Evidence from the metal-mining prices super cycle in Chile

• Published in: Resources policy Vol. 79; p. 102943
• Main Authors: Rodríguez-Puello, Gabriel, Chávez, Alicia, Pérez Trujillo, Manuel
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01-12-2022
• Subjects: Chile; Economic shock; Natural resources; Returns to schooling; Unemployment; Natural resources; Economic shock; Returns to schooling; Chile; Unemployment
• ISSN: 0301-4207; 1873-7641
• DOI: 10.1016/j.resourpol.2022.102943

We analyze the effect of an exogenous commodity shock on youth long-run unemployment, and the causal mechanisms that underlie this relationship. We use Chile as a study case and the Metal Mining Price Super Cycle between the years 2003 and 2011 as an exogenous shock. The shock in Chile has two primary phases: expansion and contraction. Expansion began in 2003 and coincides with the sustained increase in metal mining prices, reaching their maximum level in 2011. Contraction began in 2013 as prices began to fall. The Chilean labor market was significantly affected by both. We leverage the heterogeneous spatial exposure of Chilean municipalities to the shock and use a difference-in-difference approach and simultaneous equations models with lagged variables to analyze the causal mechanisms. We find evidence that this shock negatively impacted the wage premium for education. We also provide empirical evidence of a simultaneous decrease in school enrollment rates and an increase in the labor force participation of the 15-18-year age group in mining municipalities during the shock. Finally, in the long term, this negatively impacted the employability of these individuals, increasing their likelihood of unemployment once the shock ended.
•We estimate the causal effect of a commodity shock on long-run unemployment.•Commodity price shocks impacts on the school enrollment, labor force participation, and the long-term employability of youth.•In the long term, the shock decreased the employability of youngsters, increasing their likelihood of unemployment.