The Terrifying Reality of Long-Term Unemployment

[Syt]

From the "No shit, Sherlock" Dept.:

http://www.theatlantic.com/business/archive/2013/04/the-terrifying-reality-of-longterm-unemployment/274957/

The Terrifying Reality of Long-Term Unemployment

It's an awful catch-22: employers won't hire you if you've been out of work for more than six months

Close your eyes and picture the scariest thing you can think of. Maybe it's a giant spider or a giant Stay Puft marshmellow man or something that's not even giant at all. Well, whatever it is, I guarantee it's not nearly as scary as the real scariest thing in the world. That's long-term unemployment.

There are two labor markets nowadays. There's the market for people who have been out of work for less than six months, and the market for people who have been out of work longer. The former is working pretty normally, and the latter is horribly dysfunctional. That was the conclusion of recent research I highlighted a few months ago by Rand Ghayad, a visiting scholar at the Boston Fed, and William Dickens, a professor of economics at Northeastern University, that looked at Beveridge curves for different ages, industries, and education levels to see who the recovery is leaving behind.

Okay, so what is a Beveridge curve? Well, it just shows the relationship between job openings and unemployment. There should be a pretty stable relationship between the two, assuming the labor market isn't broken. The more openings there are, the less unemployment there should be. If that isn't true, if the Beveridge curve "shifts up" as more openings don't translate into less unemployment, then it might be a sign of "structural" unemployment. That is, the unemployed just might not have the right skills. Now, what Ghayad and Dickens found is that the Beveridge curves look normal across all ages, industries, and education levels, as long as you haven't been out of work for more than six months. But the curves shift up for everybody if you've been unemployed longer than six months. In other words, it doesn't matter whether you're young or old, a blue-collar or white-collar worker, or a high school or college grad; all that matters is how long you've been out of work.

Help Wanted -- If You've Been Out of Work for Less than Six Months

But just how bad is it for the long-term unemployed? Ghayad ran a follow-up field experiment to find out. In a new working paper, he sent out 4800 fictitious resumes to 600 job openings, with 3600 of them for fake unemployed people. Among those 3600, he varied how long they'd been out of work, how often they'd switched jobs, and whether they had any industry experience. Everything else was kept constant. The mocked-up resumes were all male, all had randomly-selected (and racially ambiguous) names, and all had similar education backgrounds. The question was which of them would get callbacks.

It turns out long-term unemployment is much scarier than you could possibly imagine.

The results are equal parts unsurprising and terrifying. Employers prefer applicants who haven't been out of work for very long, applicants who have industry experience, and applicants who haven't moved between jobs that much. But how long you've been out of work trumps those other factors. As you can see in the chart below from Ghayad's paper, people with relevant experience (red) who had been out of work for six months or longer got called back less than people without relevant experience (blue) who'd been out of work shorter.



Look at that again. As long as you've been out of work for less than six months, you can get called back even if you don't have experience. But after you've been out of work for six months, it doesn't matter what experience you have. Quite literally. There's only a 2.12 percentage point difference in callback rates for the long-term unemployed with or without industry experience. That's compared to a 7.13 and 8.95 percentage point difference for the short-and-medium-term unemployed. This is what screening out the long-term unemployed looks like. In other words, the first thing employers look at is how long you've been out of work, and that's the only thing they look at if it's been six months or longer.

This penalty for long-term unemployment is unlike any other. As you can see in the chart below, job churn is another red flag for employers, but not nearly to the same extent. Applicants who'd gone through five to six jobs but had relevant experience were still more likely to get called back than those who'd gone through three to four jobs but didn't. And they had about as good a chance as those who'd only held one or two jobs but weren't experienced. In other words, there is no job-switching cliff like there is an unemployment cliff.



Long-term unemployment is a terrifying trap. Once you've been out of work for six months, there's little you can do to find work. Employers put you at the back of the jobs line, regardless of how strong the rest of your resume is. After all, they usually don't even look at it.

Let's be clear. Ghayad's field study shows employers discriminate against the long-term unemployed. All of the fake resumes he sent out were basically identical. But firms ignored the ones from people who'd been out of work for six months or longer -- even when they had better credentials. Employers look at how long you've been unemployed as a better proxy for skills than anything else on your resume. In other words, more jobs-training probably won't help the long-term unemployed all that much. Even a stronger economy will only help them years in the future, rather than many years in the future.

It's time for the government to start hiring the long-term unemployed. Or, at the least, start giving employers tax incentives to hire the long-term unemployed. The worst possible outcome for all of us is if the long-term unemployed become unemployable. That would permanently reduce our productive capacity.

We can do better, and we need to start doing so now. We can't afford long-term thinking in either the short or the long-term.

[katmai]

Are you trying to make Seedy go postal?

[Syt]

No.

[Ideologue]

I've been working for a year and a half.  Where are my callbacks?

[CountDeMoney]

Are you trying to make Seedy go postal?

After 6 months, I stopped giving a shit anymore.  So it goes both ways.

[Strix]

I guess the next article will be...

The Terrifying Reality of Not Having Any Education When Seeking Employment

[Ideologue]

The terrifying reality is that there are too many people for too few jobs that need doing.  That's it.  We've got to change the culture away from its equation of a job with life, or have a war, or something.

[Strix]

The terrifying reality is that there are too many people for too few jobs that need doing.  That's it.  We've got to change the culture away from its equation of a job with life, or have a war, or something.

The problem is that has already happened. A lot of people do not equate a job with a life, so they live off the governments dime and/or society. We need to change the culture back to one that considers a good work ethic to be something valuable.

[Eddie Teach]

The terrifying reality is that there are too many people for too few jobs that need doing.  That's it.  We've got to change the culture away from its equation of a job with life, or have a war, or something.

The problem is that has already happened. A lot of people do not equate a job with a life, so they live off the governments dime and/or society. We need to change the culture back to one that considers a good work ethic to be something valuable.

Supposing you're right, that just means even more jobs that somehow need to be created. The employed people with poor work ethics are already too productive.

[Ideologue]

The terrifying reality is that there are too many people for too few jobs that need doing.  That's it.  We've got to change the culture away from its equation of a job with life, or have a war, or something.

The problem is that has already happened. A lot of people do not equate a job with a life, so they live off the governments dime and/or society. We need to change the culture back to one that considers a good work ethic to be something valuable.

So if there aren't enough jobs to give to them, unemployed people should develop a stronger work ethic?

[garbon]

The terrifying reality is that there are too many people for too few jobs that need doing.  That's it.  We've got to change the culture away from its equation of a job with life, or have a war, or something.

The problem is that has already happened. A lot of people do not equate a job with a life, so they live off the governments dime and/or society. We need to change the culture back to one that considers a good work ethic to be something valuable.

So if there aren't enough jobs to give to them, unemployed people should develop a stronger work ethic?

They should start their own companies!

[Ideologue]

Actually, Strix' post is 100% an illustration of what I mean.  No job = fucking bum.  But when there are jobs for only 90% of the population--let's say for argument--10% of the population is going to have no choice but to be a bum.  As we advance into this century, the former percentage will decrease, until you get to a point where a sizeable mass of people are neither employed nor employable.  What then?  Should they work harder?  Work harder at what?

Because even if they increase their skills, etc., odds are just as good that they'll displace someone else rather than add a job.  Economies are not zero-sum, but they've never been totally modular either.  Starting your own company may be additive, but it may crowd out another firm just as easily--especially when demand is likely to be pitiful thanks to all the unemployed people.

[Martinus]

I guess the next article will be...

The Terrifying Reality of Not Having Any Education When Seeking Employment

The problem is that employers simply are unwilling to hire people who have been on unemployment for too long for no other reason than because they have been on unemployment for too long - and it's not being justified by a presumed lack of skill, but simply because people who have been unemployed for too long are demoralized by the experience of unemployment. So this is a real issue.

[Admiral Yi]

The terrifying reality is that there are too many people for too few jobs that need doing.  That's it.  We've got to change the culture away from its equation of a job with life, or have a war, or something.

Jobs are potentially infinite, depending on the wages people are willing to accept to perform them.

[Martinus]

This is best illustrated if you consider situation of people who have never been employed. For example, during the first hit of the slump, there was a break in law firms here hiring new trainees/juniors - so new graduates would not find a job for one - two years during that period.

After this ended, and firms started to hire again they would prefer to hire fresh graduates rather than people who graduated one or two years ago and did not work since. So essentially you end up with whole groups of people who end up being unemployable in their profession for no fault of their own.