Some Rational Thinking on Unemployment, Long-Term and Otherwise

Megan McArdle has a very nice article here on the causes of unemployment, and the causes of extended unemployment. The studies that she cites mirror what I've seen with respect to the unemployed workforce, both from a personal and professional standpoint. But very little of this type of rational, numbers-based discussion seems to make it into the mainstream debate about the issue.

Bottom line-extended benefits for unemployment, whether characterized as unemployment compensation, disability benefits, or whatever, seem to exacerbate the long-term unemployment issue. People are apparently willing to tolerate a lower standard of living for an extended time when getting reemployed becomes difficult.  Making it difficult to fire people makes employers unwilling to hire people; the United States has a much lower unemployment rate than most the countries in Europe, where job security exists as a matter of law.  And finally, programs that ease the emotional discomfort of job hunting (not unemployment, per se) seem to be the most effective at getting people back to work.

This article contains some very useful thoughts for public policy types dealing with what is starting to appear like an intractable problem.

The Pernicious Impact of Long-Term Unemployment

A hallmark of the current awful economy (I know, I know, the President keeps saying things are getting better, but the short answer is that without full-time jobs becoming available, things are getting worse for much of working America, not better) is the number of people who have been unemployed for an extended period, in some cases dropping out of the workforce altogether. Economists have long known that the longer you are not working, the harder it is to find a job. But now there's some hard data that quantifies just how difficult it is for the long-term unemployed to get back in the game.

In an article entitled "Out of Work over Nine Months? Good Luck Finding a Job", the WSJ notes that more than 3 million Americans have been out of work for more than a year, and that doesn't even include the numbers who have simply stopped looking. Many of them will likely never work again, in fact.

Part of the reason for that depressing conclusion is that people who've been out of work for a long time are stigmatized by companies, to the extent that even qualified candidates with a long jobless stretch are rejected by employers.

The article cites a study by two Swedish economists who applied for more than 3500 jobs using some 8500 fictitious resumes. Some of the phantom applicants had uninterrupted employment histories, some had unemployment histories previously, some were currently unemployed, and the lengths of unemployment for the applicants varied.

The study showed that short-term spells of unemployment (six months or less) didn't really affect job seekers' prospects, and might even have been an advantage for low-skilled positions. But for low- or medium-skilled positions (which didn't require a college degree), being unemployed for nine months or more caused a precipitous drop in the callback rate. The pattern wasn't nearly so bad for college degree positions--another reason you should tell your kids to finish college. And even for long-term unemployed, once they started working, the stigma of being jobless virtually disappeared when they applied for their next position.

How does the Swedish study apply to United States? Although the job markets are relatively similar, there's at least some evidence that US employers take a harsher view of long spells of unemployment.

The lesson here-employers need see passed unemployment histories and try to determine if the individual reflected in the resume actually has a desirable skill set. As usual, focus on specifics that relate to a particular position, look for explanations for the unemployment, and assess the actual qualifications of the potential hire. Notwithstanding the concern that long unemployment raises with most employers, companies are likely passing up what are effectively bargains if they allow a visceral reaction to unemployment to affect their analysis.