The Terrifying Reality of Long-Term Unemployment

4
Matthew O’Brien | The Atlantic
It’s an awful catch-22: employers won’t hire you if you’ve been out of work for more than six months
The Terrifying Reality of Long-Term Unemployment

Close your eyes and picture the scariest thing you can think of. Maybe it’s a giant spider or a giant Stay Puft marshmallow 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 a PhD candidate in economics at Northeastern University, 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.
LongTermUnemploymentScary.png
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.
LongTermUnemploymentChurn.png
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.

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4 Responses

  1. Ltpar says:

    Speaking only for myself, if I were in the job market (am not) and couldn’t find a job in my given field, I would be going to school and training to learn a new profession where there are jobs. There is absolutely no excuse for people to sit around, living on government handouts for years waiting for a job, which may be gone forever. It is time for Americans to become responsible for their own well being and take the initiative for their own lives. That is what this contry was built on and what we need now.

    • Melissa B. says:

      Wow.. Your comment left a bad taste in my mouth. People like me are reaching out to find resources of what others are going through in this pitiful job market and when I come across your very negative public comment for “yourself” or whoever you intend to write this to you are very rude and shameful. You can not even begin to understand the lives that have been impacted from not having a job… no , we do not just “sit around” and “live off of the gov.” we find ways to become entrepeneurs working for people that do have money and are not greedy looking out for “themselves”. You should know people are coming here look for advice not your nasty two cents. By some chance if you ever become in my situation, where I prefer to have a career so I can take care of my fathers property after he dies and not struggle in some apt. making minimum wage until you know that sitiuation first-hand lady or man I think you should step down on trying to belittle others with your half-wit nonsense comments. Stop wasting your time and mine. Thank you.

  2. doesntmatter says:

    sooooo you mean to tell me, there are 20,000 ppl willing to come together to run a freaking marathon, but we cant get 20,000 to protest a blatantly demonic government????? and you wonder why we will have the demise that is inevitably approaching upon us…

  3. 5 War Veteran says:

    The Government cooks the books and lies about the employment numbers. more than half of Americans capable of working are unemployed because there are no jobs and the US Government wants to give illegal aliens amnesty.
    Enforce immigration laws in existence. Get rid of criminal government.

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