Friday, April 19, 2013

Employers Foolish To Automatically Reject Long-Term Unemployed

Employers Foolish To Automatically Reject Long-Term Unemployed
More often than not, employers refuse to consider applicants who have been long-term unemployed, regardless of their qualifications. As a result, securing work in a terrible job market is nearly impossible for those who need it the most.

I say "impossible" without the slightest hint of hyperbole. Take it from 2 economists who study employment for a living, as chronicled by the Atlantic in an aptly grim article:
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.
Employers Foolish To Automatically Reject Long-Term Unemployed - Callback Rate vs. Unemployment Duration

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.

Employers Foolish To Automatically Reject Long-Term Unemployed - Callback Rate vs. Job Transitions

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.  
Common sense dictates that, by automatically rejecting long-term unemployed applicants when they are better qualified, employers are creating tremendous opportunity costs for themselves and the economy. Even if the experience of long-term unemployment "wears" on a person, an equilibrium must exist between credentials and time spent unemployed.

Furthermore, the assumption that long-term unemployment erodes applicant value may be fundamentally-flawed. Long-term unemployment may provide something of great value that applicants who have never experienced it cannot have: unique personal growth. They can be better, stronger people because of their jobless experiences. And, because they likely never want to experience unemployment again, they have an extra incentive to do a good job. Employers would be wise to consider these factors before automatically discarding the long-term unemployed.

2 comments:

  1. Five years of unemployment after graduating from private university, diligent volunteer work and continued training in various skills... I think about suicide everyday. It is an inevitability after a few more years, I have no future. In the mean time I have become a political activist a d organizer for my own Sanity and Integrity.. And suffer the social stigma of sexualized work though i enjoy and am grateful for it. It's the stigma that cuts, losing fair weather friends family and lovers to a hand-to-mouth
    lifestyle. In the end the "employeds" cannot empathize and will discard you out of fear for themselves. I relate to homeless people more than anyone at the mall. I have become a much more Empathic, humanitarian and heart guided person. I am better for my struggle, though I've learned to trust no one as everyone will reject you out of self preservation in a Corperate slave Society.

    ReplyDelete
    Replies
    1. Don't give up. Devote your energies to your political advocacy. That's what I'm doing.

      Delete

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