Young people in Kenya constitute 30% of total population while youth unemployment constitutes 78% of total unemployment. In nearly all developing countries the rate of urban unemployment in the 15-24 age group is at least double the rate of all other age groups. These high rates of urban unemployment in this age bracket are also seen in developed countries, although the rates are far lower than those of developing nations (Livingstone, I. and Ord, H.W., 1985). Literature also acknowledges that the unemployment rate understates the extent to which labour is “underutilized” (Bosworth and Westaway (1987), Bregger and Haugen (1995), Mitchell and Carlson (2001). This is because unemployment rate does not capture the underutilization of labour that occurs when employed persons would like to work more hours at the prevailing wage rates than they actually work. The main objective of this study was to empirically analyse the factors explaining why some youths would be openly unemployment or underemployment while others are able to secure full employment. We also seek to determine the role of education and training in explaining youth unemployment. Data from Kenya Integrated Household Budget Survey (KIHBS) 2005 / 2006 is used for analysis. We find that education and training are still important buffers against unemployment despite the unemployment challenges experienced by educated youths. We also find that the buffer level of education against unemployment is at least university level of education. This implies that those with secondary level of education or below may have problems securing employment especially in the urban areas. This issue is discussed at length within the context of “qualification escalation phenomena” otherwise known as the “diploma disease”. Other important findings include the gendered nature of youth unemployment and that open unemployment is more of an urban phenomenon than rural. The paper recommends innovations in the education system to deal with the problem of qualification escalation while making learning relevant in the job market. We also recommend gender mainstreaming in employment interventions. Lastly the paper recommends that dealing with the few employment vacancies calls for policy makers to pursue policies that stimulate economic growth and job creation.