Youth underemployment in the Western Balkans: A multidimensional approach

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.