Undercover Economist

A hire truth

New research shows with horrible clarity what a wretched trap long-term unemployment is becoming

When my friend Nicola quit her job in educational publishing, it was for understandable reasons: one of her colleagues was a bully, her boss was providing little support and work had become miserable. (I’ve changed her name.) She had a strong CV, a husband with a steady job and young children to spend time with so she decided to resign before finding a new job. She’s now been unemployed for a year and a half.

So many economies have been depressed for so long that Nicola’s predicament is common. But new and unpublished research from a young Lebanese PhD student, Rand Ghayad of Northeastern University in Boston, shows with horrible clarity what a wretched trap long-term unemployment is becoming.

(April was a good month for economics students elsewhere in Massachusetts: Thomas Herndon of the University of Massachusetts, Amherst, delivered a reputational kneecapping to Harvard professors Carmen Reinhart and Ken Rogoff when he discovered a spreadsheet error in their much-trumpeted paper “Growth in a Time of Debt” as part of a course assignment.) (Here’s our coverage on “More or Less” – MP3.)

Ghayad used a computer program to generate job applications that were standardised but varied along a few parameters – whether the imaginary applicant had worked in the relevant industry, had hopped a lot between jobs, and how long the applicant had been unemployed, if at all. Ghayad mailed 4,800 of these CVs off to apply for 600 vacancies, chosen to reflect a variety of city locations, seniority and industry. He then recorded which applications were offered an interview.

Unsurprisingly, candidates with recent relevant experience were at an advantage, and a history of job-hopping did not help. But what was astonishing was the effect of long-term unemployment. Applicants with experience from the wrong industry who had been unemployed for 14 weeks or less were more than three times as likely to receive a call from the employer than applicants with experience in the right industry but who had been unemployed for six months or more. Regardless of sector, employers are, apparently, more interested in shunning the long-term unemployed than in looking for relevant experience.

The implications for Nicola and others like her are clear. But it is puzzling that employers put such emphasis on avoiding the long-term unemployed. A long period of unemployment is a negative signal, of course – it suggests that the applicant might not have been trying, might be getting rusty or might have been interviewed and rejected several times by other employers. But quite why it is such an overwhelming stain on a CV is not clear. Six months isn’t even a long time – in Europe, you don’t even count as long-term unemployed until you’ve been looking for work for a year.

Ghayad believes the evidence suggests that employers are using long-term unemployment as a quick – perhaps even automated – reason to disqualify applicants for oversubscribed vacancies. He thinks the policy implications are that the US needs more economic stimulus, because only a surge in employment would force employers to give the long-term unemployed a chance.

What’s certainly clear is that this reluctance to hire the long-term unemployed is one way in which the recession is leaving long-lasting scars. This has happened before: one of Margaret Thatcher’s less trumpeted achievements was a rise in the equilibrium unemployment rate that lasted into the mid-1990s. One likely cause was simply the number of people who became severed from the labour market in the deep recession of 1981.

I asked Ghayad, 27, why he’d chosen a PhD in economics. He had a simple answer: “I graduated during a recession and I couldn’t find a job.” Silver linings, for some.

Also published at ft.com.

4th of May, 2013Undercover Economist • Comments off