Public interventions to improve youth labor market outcomes are motivated primarily by the presence of market failures as well as equity concerns. Market failures occur when the labor market and the market for skills provision do not, on their own, yield economically efficient employment outcomes. For example, because a firm’s investment in training its workers may end up benefiting other firms if the workers leave, firms on their own tend to underinvest in training from a societal perspective. Another source of market failure is imperfect information, in which employers lack adequate information on the skills of potential employees, hindering efficient matching of workers to firms, or in which both youth and firms lack knowledge of the benefits to skills training or what kinds of training would be most useful. There may also be imperfections in capital markets, such that firms or workers cannot borrow to make profitable investments in training or to start a new business. Many of these problems are especially severe for youth; for example, youth lack work experience that could signal their skills to employers, and also lack collateral that would enable them to borrow to start an enterprise. Governments also have equity objectives that markets alone will not achieve and may even work against, requiring intervention. For example, disadvantaged youth require more training to achieve job skills than other youth, and more than firms find it profitable to provide.
