Career paths, unemployment, and the efficiency of the labor market: should youth employment be subsidized?

This paper studies the implications of learning-by-doing on youth unemployment and market efficiency when workers benefiting from this kind of training experience search (while on the job) for a higher skill job. Firms with low-skill jobs suffer from a poaching behavior by firms with high-skill jobs, causing a shortage of low-skill jobs and excessive youth unemployment. An optimal policy, consisting of taxing the output of high-skill jobs and subsidizing the output of low-skill jobs, restores market efficiency and reduces youth unemployment.