Impact of youth unemployment in Ethiopia during COVID-19 Lockdowns: Case study Arsi-Zone, Ethiopia

Abstract Background: Unemployment is a significant issue in Ethiopia and Arsi Zone, with a high rate of 26%. This study aims to estimate the impact of unemployment using the PSM model and develop indices for latent variables using the SEM model. Aim: The study aims to analyze the factors driving individuals to self-employment and paid employment, as well as the consequences of unemployment in Arsi Zone, Ethiopia. Setting: The research is conducted in Arsi Zone, Ethiopia, where unemployment is a pressing issue. Method: A combination of PSM and SEM models are used to analyze the data, with the PSM model estimating the impact of unemployment and the SEM model reducing dimensions and developing indices for latent variables. Results : The study finds that personal skills, marital status, and urban status drive individuals to self-employment, while age, income, experience, and education drive individuals to paid employment. The research also reveals that regional economic growth, graduate credit, and government commitment to ban administrative malpractices should be areas of government intervention. Conclusion: The study highlights the challenges posed by unemployment in Arsi Zone and provides insights into potential solutions and interventions. Contribution: The study contributes to the literature on unemployment in Ethiopia and Arsi Zone by providing empirical evidence on the factors driving individuals to self-employment and paid employment, as well as the consequences of unemployment in the study area.