Peer Effects in the Adoption of a New Employment Subsidy for Vulnerable Youths

This paper studies the effects of peers on the adoption of a Youth Employment Subsidy for vulnerable youths in Chile. We focus on the effects of high school classmates and coworkers’ adoption on one’s adoption. Identification comes from a discontinuity in the subsidy assignment rule inducing exogenous variation in a neighborhood around the worker’s wage eligibility cutoff. Using a comprehensive set of administrative records that include high school and matched employer-employee data, we find that coworkers strongly influence one’s adoption of the subsidy while high school classmates do not. Peer effects are larger among older youths with about five years of working experience and within big firms. We also find that peer effects decrease with time, but remain significant, one year after program implementation. These results suggest that information diffusion is one channel explaining adoption in the short run, but more research is needed to understand steady state take-up level.