The Terrifying Reality of Long-Term Unemployment | Matthew O’Brien | April 13, 2013 | The Atlantic

Employers can tap a greater pool of potential by considering the long-term unemployed over people who churn through jobs.  What’s the catch? Employers should be realistic that training is an investment in human capital, that can pay off in better employee retention.

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.

The Terrifying Reality of Long-Term Unemployment - Matthew O'Brien - The Atlantic

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.

The Terrifying Reality of Long-Term Unemployment - Matthew O'Brien - The Atlantic
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.

The Terrifying Reality of Long-Term Unemployment | Matthew O’Brien | April 13, 2013 | The Atlantic at http://www.theatlantic.com/business/archive/2013/04/the-terrifying-reality-of-longterm-unemployment/274957/.

Rand Ghayad and William Dickens, “What Can We Learn by Disaggregating the Unemployment-Vacancy Relationship?”, Federal Reserve Bank of Boston, Public Policy Brief No. 12-3, at http://www.bos.frb.org/economic/ppb/2012/ppb123.htm