Nowadays, the growth of educated youth unemployment is one of the critical problems facing Ethiopia. Most young people in Ethiopia are attaining their formal education with the hope of leading a better life and improving their livelihood. Even though, young people’s and their families expectations and hopes placed on education that is associated with upward social mobility and improvement of livelihoods, in reality, most youth in their post schooling life have to face unemployment challenges and remain jobless for an extended period of time. The intensity of the problem is high in Addis Ababa, the prime city of the country. Therefore, this study was set to identify the cause of educated youth unemployment and its socio economic effects in different areas of Addis Ababa with the goal of providing a better understanding of its prevalence. In doing so, the study identifies the major causes of unemployment for educated youth, assess the socio economic effects of educated youth unemployment in the study area and propose the solution to address educated unemployed youth problem. The study was primarily based on descriptive qualitative and quantitative data. The primary data were collected from 389 educated unemployed youths that are selected by purposive, snowball and convenience sampling techniques. The respondents were accessed from three different areas of Addis Ababa that were selected purposively. The data were collected through questionnaire and interviews. The data gathered through different techniques were analyzed accordingly to the objectives of the study. Based on the objectives of the study: lack of entrepreneurship skill, low quality of education, rural urban migration, mismatch of skill with the labor market, lack of good governance job selection attitude by unemployed educated youth and lack of work experience were identified as the cause of educated youth unemployment. Based on these findings some recommendation were suggested.. Key words: Young people, unemployment, labor market, educated youth, unemployed youth