The Wrongologist

What’s
Wrong Today:

Matthew
O’Brien of The Atlantic updates
us on the depressing prospects for the long term unemployed: (emphasis by the Wrongologist)

Here
is the data for the long-term unemployment situation in the US.

It
equals 4.6 million people as of March 2013, down from 6.7 million in April, 2010.
That is a big improvement, but O’Brien says that today, there are two labor markets with different dynamics. One is
the market for people who have been out of work for less than six months, and
the second is the market for people who have been out of work longer.

The
less-than six month unemployed marketplace is working normally, while the over-six
month unemployed market is dysfunctional. O’Brien discusses recent research by
Rand Ghayad, a visiting scholar at the Boston Federal Reserve Bank, and William
Dickens, a professor of economics at Northeastern University.

They
analyzed Beveridge curves
to see who the recovery is leaving behind. A Beveridge curve shows the
relationship between job openings and unemployment.

What
Ghayad and Dickens found is that the Beveridge curves are normal across all
ages, industries, and education levels, as long as you haven’t been out
of work for more than six months. In other words, it doesn’t matter
whether you’re young or old, blue-collar or white-collar, or a high school or
college grad: The only thing that
matters is how long you’ve been out of work.

Ghayad
sent out 4800 fictitious resumes to 600 job openings. He varied how long the
fictitious people had been out of work, how often they’d switched jobs, and
whether they had any industry experience. 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. The chart below shows the results of his experiment:  

The
chart below shows the percentage of the time that an unemployed person gets
called back for a job interview based on how
long they have been out of work: As you can see, people with relevant
industry 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
a shorter period. 

So,
if you’ve been out of work for less than six months, you may get called back even without experience. But if you’ve
been out of work for six months, experience no longer matters. There was only a
2.12 percentage point difference in callback rates for the long-term unemployed
with or without industry experience, compared to a 7.13 and 8.95 percentage
point difference respectively for the short-and-medium-term unemployed.

The
penalty for long-term unemployment is worse than other issues. As you can see in
the chart below, job churn, another red flag for employers, does not hurt an
out-of-work person to the same extent as the duration of unemployment. The
chart below divides the phony resumes
into those who switched jobs a lot vs. those who rarely moved. Applicants
who had 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 have industry experience.

Ghayad’s
field study shows employers
discriminate against the long-term unemployed. Firms even ignored
resumes from people who’d been out of work for longer than six months when they had better credentials.
So, more jobs-training may not help the long-term unemployed all that much.

A
stronger economy may only help some years in the future, when the supply and
demand for labor is in greater equilibrium than today.  

Our
society needs to wake up to the reality that once you’ve been out of work for
six months, there’s little you can do to find work, regardless of how strong
the rest of your resume is. After all, employers hardly look at it. 

The
worst possible outcome for all of us
is if the long-term unemployed become
unemployable. That has major sociocultural implications and it permanently
reduces our productive capacity. 

What’s
horrible is that both political parties recognize the problem, but that only
one side seems to want to do anything about it.


Mr. Obama has proposed large-scale infrastructure projects which could put some
Americans to work. He has proposed large-scale job training efforts to get
Americans the skills they need to be employable. Republicans
blocked them both. 

The Wrongologist has written that our political stalemate will begin 
to break down by 2020, which is when the demographics turn: 

• Demographic
  projections by the Census Bureau show that at by 2020, the US will be
  older than ever: People over 64 will have grow by 7.2% to 28% of the
  population compared with 21% now.

• The white majority will decline
  to about 60% from 68% now.

• People of working age (18-64)
  will decline by ~15% to 61.8% from 76.7%.

Unless we deal with
the long-term unemployment problem before 2020, the young underemployed and the long-term
unemployed may coalesce around a view that the system must be changed.
They might join together to start a new political movement. It may not
look like the Occupy movement or the Tea Party movement, but it will be
informed by both.

Remember, 2020 is
only two presidential elections from today.

Obviously the private sector won’t or can’t
solve the long-term unemployment problem. If they wanted to, or could, we wouldn’t
be talking about it here.

Republicans continue to propose cutting
taxes and then cutting government spending. They say that these policies will
magically create jobs.

Let that sink in. Then
let’s elect people who really want to solve the problem.