Long-term unemployment is a sticky situation
Jul 26th 2011, 20:49 by R.A. | WASHINGTON
CATHERINE RAMPELL tells the troubling story of the long-term unemployed in America, who often find that even their job applications are unwelcome:
A recent review of job vacancy postings on popular sites like Monster.com, CareerBuilder and Craigslist revealed hundreds that said employers would consider (or at least “strongly prefer”) only people currently employed or just recently laid off.The practice is common enough that New Jersey recently passed a law outlawing job ads that bar unemployed workers from applying. New York and Michigan are considering the idea, and similar legislation has been introduced in Congress. The National Employment Law Project, a nonprofit organization that studies the labor market and helps the unemployed apply for benefits, has been reviewing the issue, and last week issued a report that has nudged more politicians to condemn these ads.Given that the average duration of unemployment today is nine months — a record high — limiting a search to the “recently employed,” much less the currently employed, disqualifies millions.
A little background: the recent recession looked somewhat different from most previous recessions in that the rate of exit from unemployment fell dramatically. In the early 1980s, by contrast, lots of workers lost jobs, but most of them returned to the labour force relatively quickly. So while the unemployment rate in the early 1980s peaked above the top unemployment rate of this latest downturn, the average duration of unemployment in the early 1980s was about half of the current level. The result is an unprecedented crisis of long-term unemployment.
The employer behaviour described by Ms Rampell is probably rational. Firms likely see long-term unemployment as a useful signal of worker quality, and given the huge volume of applications attracted by any advertised opening, this filter makes their job easier without eliminating too many high-quality candidates from consideration. (Though Ms Rampell questions this here.)
What’s fascinating to me are the labour-market dynamics revealed by her piece. Consider:
“I feel like I am being shunned by our entire society,” said Kelly Wiedemer, 45, an information technology operations analyst who said a recruiter had told her that despite her skill set she would be a “hard sell” because she had been out of work for more than six months.
I’m going to draw an analogy here that is in no way intended to degrade Ms Wiedemer; it’s simply meant to be illustrative. Suppose you’re trying to sell a product and you’re informed that the product is a “hard sell”. Suppose further that the product you’re selling is perishable; the longer it sits on the shelf, the less attractive it is to potential buyers. What do you do? You might try an advertising campaign to lure in buyers. If there are lots of other people selling similar, perishable goods, however, then they’ll be doing the same thing, and your message will be drowned out. You might try to repackage the good. But that’s not cheap, and having shelled out for the good in the first place you might not have the money or the time to spend on repackaging. So what do you do?
You mark down the price, obviously. You slash the price by 20% or 50% or 70% if need be, because it’s not doing you any good at all to have that product sitting on the shelf going bad. So the question is: why isn’t Ms Wiedemer cutting her asking price?
There are several potential reasons. One is that the wage that would get her hired is so low that it’s not worth it to her to offer the necessary discount. That could be because she has fall back income (like unemployment insurance) that’s more generous than the discount wage. Or it could be because she’s liquidity constrained and can’t survive on the discount wage, such that the only realistic option for her is to hold out for an above-market wage.
Another possibility is that there’s no realistic way for those in her position to sell themselves at a sufficient discount. How do you advertise that you’re willing to work for next to nothing? You could put it on your resume, but it still might not get noticed and if it did the potential employer might read it as a signal of a lack of fitness. One of the weird things about the American labour market is that most or all wage negotiation is done after an employer decides whether it wants you or not.
Or the troubles could be on the employer side. Maybe firms fear that current employees will react angrily to the hiring of discount workers, as that places downward pressure on their compensation. Or maybe there is a coordination problem. Maybe even a heavily discounted worker is unattractive to a firm while the sales outlook remains weak. And maybe the sales outlook is destined to remain weak while tens of millions of workers are un- or underemployed. If all unemployed workers quickly offered their market wages and found job matches, then the outlook for sales would improve and firms would develop the corresponding appetite for labour needed to soak up un- and underemployed workers. But since no one is coordinating this process, workers remain short of jobs and firms remain short of sales.
It strikes many people as strange to think that the unemployment problem might actually be the result of sticky wages. How could this be? Aren’t unemployed people anxious to take any job at any pay? But if you start thinking about the actual ways labour market matches come together, and about the prospect of an educated IT worker trying to get herself hired by a reputable firm at 20% of the pre-recession market wage, it begins to seem less silly. If only there were some independent board out there with the ability to coordinate changes in expectations and facilitate adjustments in relative prices. If only.
