A new theory on long-term unemployment

Dec 14, 2012 by Matt Collette
In a new paper published by the Federal Reserve Bank of Boston, economics doctoral student Rand Ghayad offers a fresh take on why long-term unemployment remains stagnant. Credit: Brooks Canaday

(Phys.org)—Com­pa­nies rank more recently unem­ployed job can­di­dates much higher than they would rank oth­er­wise qual­i­fied appli­cants who have been out of work for more than six months, cre­ating an "unem­ploy­ment cliff" that puts the long-​​term unem­ployed at a severe dis­ad­van­tage in the job market.

The analysis is the result of a new paper that was penned by Rand Ghayad, a North­eastern Uni­ver­sity doc­toral stu­dent in eco­nomics, and pub­lished this month by the Fed­eral Reserve Bank of Boston.

Ghavad's work focused on the Bev­eridge curve, which, up until 2009, showed that unem­ploy­ment decreased when job open­ings increased. But he found that the existing "one size fits all" eco­nomic analysis did not hold up when smaller sub­sets of the curve were ana­lyzed indi­vid­u­ally, such as a job candidate's field of employ­ment or length of .

Those who had been out of work for more than six months had been faring sig­nif­i­cantly worse in finding a new job than those who had been unem­ployed for a brief period of time, according to Ghayad's analysis.

"At the end of the 2007 reces­sion, vacan­cies started increasing without any change in unem­ploy­ment, which led many econ­o­mists to blame the slack in the labor market on 'struc­tural fac­tors,' meaning the people out of work were not qual­i­fied for the jobs that were avail­able," Ghayad said.

But Ghayad and his doc­toral adviser William Dickens, Uni­ver­sity Dis­tin­guished Pro­fessor of Eco­nomics and Social Policy and the paper's co-​​author, exam­ined the problem from a dif­ferent angle. They found that the long-​​term unem­ployed were qual­i­fied for jobs but were ranking lower than other poten­tial can­di­dates because of the length of time they had been out of the workforce.

Starting last spring, Ghayad sent out approx­i­mately 4,800 fic­ti­tious, computer-​​generated resumes that rep­re­sented appli­cants with iden­tical cre­den­tials except for unem­ploy­ment dura­tion and industry expe­ri­ence. He found that appli­cants who had been out of work for more than six months were almost never con­tacted for an inter­view. That, Ghayad explained, served as a proxy for whether a com­pany would even con­sider hiring an applicant.

The exper­i­ment also showed that appli­cants who had pre­vi­ously worked in the same industry as that of the hiring firm had a sig­nif­i­cant advan­tage over those who had worked in a dif­ferent industry, even one that closely related to the new posi­tion they were pursuing.

"It isn't that firms aren't finding the right workers," Ghayad said, "but that employers are screening out the long-​​term unemployed."

The bias against the long-​​term unem­ployed means that those who are newly out of work are able to recover more quickly from job loss, but also it sig­nals a long-​​term problem for the nation's economy.

The Atlantic called the paper "pio­neering" and noted eco­nomics blogger Brad DeLong described the work as "a major empir­ical win" for Dickens and Ghayad. In his New York Times blog, Nobel Prize-​​winning econ­o­mist Paul Krugman wrote that Ghayad's work high­lights "exactly the kind of thing we should fear, because it means that failure to address the slump is dam­aging the economy's long-​​run prospects."

Ghayad noted that this view on long-​​term unem­ploy­ment shows that the Fed­eral Reserve's ongoing policy of quan­ti­ta­tive easing, which pumps cash into the economy at extremely low interest rates, is the best way to combat long-​​term unem­ploy­ment. With more access to cash, firms can hire more employees, including those long-​​overlooked unem­ployed applicants.

"With more jobs, you can move fur­ther back in the queue, hiring people who are still qual­i­fied but simply hadn't been con­sid­ered before," Ghayad said. "The con­tinued poor per­for­mance of the labor market is pri­marily attrib­ut­able to short­falls in the aggre­gate demand of labor. If we can create more job open­ings, we can allow the long-​​term unem­ployed to get back to work."

Ghayad, who studied eco­nomics in his home country of Lebanon and com­pleted his MBA at Boston Uni­ver­sity, is set to earn his doc­toral degree next year. He is cur­rently a vis­iting scholar at the Boston Fed and has served as a research assis­tant at the Brook­ings Insti­tu­tion, where he worked to sup­port Dickens' work.

"Research is a col­lec­tive endeavor, requiring the par­tic­i­pa­tion of many if any one person is to suc­ceed," Ghayad said. "This achieve­ment would not have been pos­sible without the intel­lec­tual sup­port and guid­ance of Pro­fessor Dickens."

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VendicarD
3.6 / 5 (8) Dec 14, 2012
Many American companies simply refuse to hire people who are unemployed. They will only hire people who are currently working.

At the same time they complain of a lack of qualified workers.

Apple for example has stated that it doesn't assemble products in America because Americans are not qualified to assemble pre-made parts.

Apparently only Chinese young people recently recruited from family farm work have the necessary qualifications.
ValeriaT
3.3 / 5 (6) Dec 14, 2012
Apple for example has stated that it doesn't assemble products in America because Americans are not qualified to assemble pre-made part
The actual truth is, the Americans are too expensive for it. From the same reason the Apple tries to evade the paying of taxes by all means possible. When it's about money, then the patriotism apparently doesn't count. For companies like the Apple the government is good enough only for enforcing the patent law, everything which could diminish their profit is ignored.
VendicarD
2.3 / 5 (6) Dec 14, 2012
"When it's about money, then the patriotism apparently doesn't count." - ValeriaT

As money grubbing LiberTarians say. Patriots are traitors by definition.

ryggesogn2
2.3 / 5 (12) Dec 14, 2012
"With more access to cash, firms can hire more employees, including those long-​​overlooked unem­ployed applicants."

What BS!
Businesses have plenty of cash. What they don't have is any confidence the govt won't tax it away or regulate it away so why should they risk THEIR wealth?
The govt printing money is putting people to work at being unproductively employed.
USSR had plenty of money and 100% employment. What went wrong?
VendicarD
2.6 / 5 (7) Dec 14, 2012
You mean they have those trillions converted to gold and sitting under the CEO's bed?

Oh, wait... Gold is declining in value.

"What they don't have is any confidence the govt won't tax it away or regulate it away so why should they risk THEIR wealth?" - RyggTard

Inflation is eating away at their trillions by 2 to 3 percent per year.

Poor Ryggtard. His knowledge of economics is even worse than his nearly non-existent knowledge of science.
dan42day
3.7 / 5 (6) Dec 15, 2012
The actual truth is, the Americans are too expensive for it.


Yes, they most certainly are. Especially if you happen to be building products to sell to American consumers who will only buy the least expensive version of a product that they can find, regardless of where it was made. When it's about money, then the patriotism apparently doesn't count.

Or Apple could just try to market products that are too expensive to sell until they go out of business.
Denver Unemployment Examiner
5 / 5 (1) Dec 16, 2012

The results of this study are spot on - and reflect the reality of many long term jobless.

Thousands of American workers in Colorado and millions more across the country have been, for the most part, chronically unemployed or significantly under-employed since they lost their jobs as a result of this recession. Many of them - the original group of '99ers' - were laid off in 2008 & 2009 and still remain without meaningful, full-time work.

There is a real-world solution - a step in the right direction - toward solving this long term unemployment crisis that lawmakers and others from all political perspectives can embrace:

Workplace, Inc, a Connecticut non profit, runs a program called 'Platform 2 Employment' (P2E). P2E is an 8-week internship program that's designed specifically to help 99ers (people who have exhausted all '99 weeks' of UI benefits) re-enter the workforce.

ryggesogn2
1.7 / 5 (12) Dec 16, 2012
Another real world solution is to make it profitable to work instead of staying on welfare.
Too many welfare programs are structured to keep people on the program rather than get them off the program.
ryggesogn2
1.7 / 5 (11) Dec 16, 2012
""It seems like the system punishes you when you try to get up out of poverty," said Tanya, telling the story of a $79 disability check that showed up one day from the father of one of her four children. The check shifted her — by one dollar — into a lower food stamp bracket, which made it tough to buy enough groceries to feed her family. Tanya wanted to send the check back since it hurt more than it helped.

Too much money on a paycheck will do the same thing. Public housing managers keep close tabs on tenants, making sure that any new money coming in makes assistance money go out. Shavers said trying to get off welfare is like putting water in a bucket with a hole in it.

At one time she was employed full-time working as a nurse's assistant making almost $8 hour, but she had to cut back to part time. She is now on disability."
http://msbusiness...atch-22/
ValeriaT
3 / 5 (6) Dec 16, 2012
the actual truth is, the Americans are too expensive for it. Yes, they most certainly are
Well, so we can extrapolate this insight further: the American got their economical power with developing of technologies, which must be applied in another countries, because the USA companies cannot afford their own labor force. It's like the society which become so rich with exploitation of robots, it cannot afford the human labor force at all. But the problem is, when you transfer the technology into another country, then you actually lose a contact with its further development. So that the expensiveness / lazziness of American regarding the certain type of work has its consequences in gradual decline of their own economical potential.

The realistic example is the gradual decline of many ancient crafts and professions, because nobody can afford the hand made products. So that these technologie becomes forgotten and now the Americans facing the same risk even in another areas of industry
Middle Molly
3.9 / 5 (8) Dec 16, 2012
Another real world solution is to make it profitable to work instead of staying on welfare.
Too many welfare programs are structured to keep people on the program rather than get them off the program.


I don't know which particular welfare program you are referring to (and this article is about UNEMPLOYMENT), but I can't imagine there is a person in the world who thinks it is more "profitable" to make something like $300 a week on unemployment instead of working.
ryggesogn2
1.9 / 5 (10) Dec 16, 2012
Another real world solution is to make it profitable to work instead of staying on welfare.
Too many welfare programs are structured to keep people on the program rather than get them off the program.


I don't know which particular welfare program you are referring to (and this article is about UNEMPLOYMENT), but I can't imagine there is a person in the world who thinks it is more "profitable" to make something like $300 a week on unemployment instead of working.

Unemployment is now welfare when the federal govt forced extension of 'benefits' and subsidized the payments.
Jeddy_Mctedder
2 / 5 (8) Dec 16, 2012
this does not belong on physorg. economics reports especially those from the central planning headquarters of money known as the fed, are not 'biased' , they are straight propoganda. the first and only way to deal with pseudo science is to identify and then mandatory ignore it.

there is no debate. the fed's mouth is like the mouth of the catholic church telling you evolution does not exist.

enough already. no articles from the fed on physorg.
Lurker2358
2.7 / 5 (7) Dec 16, 2012
the USA companies cannot afford their own labor force.


I doubt that is true.

Even Apple said labor was actually a relatively small amount of the cost of making their products.

However, some jobs are clearly over-paid in the U.S. starting with the teachers and the auto workers, the number 1 and number 2 most over paid job sectors, respectively.

Based on what I've seen on television, most auto-workers are actually extremely unskilled, and only need to screw in one or two bolts, or run a wire, before the car moves from their station, yet they make nearly 3 times the average income for an INDIVIDUAL, by the time you count their benefits...

Wow. Anybody could use a torque wrench, or run one set of wires.

It's actually harder to make fast food than the jobs I saw auto workers doing...
VendicarD
3.5 / 5 (6) Dec 16, 2012
They were given noxious, and near fatal economic advice from Libertarian Economists.

The Result was economic collapse. The same people have produced the same result in the U.S.

"USSR had plenty of money and 100% employment. What went wrong?" - RyggTard
VendicarD
3.4 / 5 (5) Dec 16, 2012
Do you think that this is why Bush reclassified burder flippers as being part of America's manufacturing sector?

Or do you think it was done to hide the failure of Libertarian economists who claimed that massive levels of offshoring in the manufacturing sector would never happen under their economic plans?

"It's actually harder to make fast food than the jobs I saw auto workers doing..." - Lurker
VendicarD
3.2 / 5 (5) Dec 16, 2012
RyggTard would prefer it be homelessness and starvation.

"Unemployment is now welfare" - RyggTard
VendicarD
3.2 / 5 (5) Dec 16, 2012
In Wyoming, the minimum wage is $2.13, so a 40 hour work week will net you $85.20

In Georgia Employees are invited to work for free.

Both Republican states of course.

"I can't imagine there is a person in the world who thinks it is more "profitable" to make something like $300 a week on unemployment instead of working." - Molly

The Fair Labor Standards Act requires a minimum wage of $2.13 for tipped workers with the expectation that wages plus tips total $7.25 per hour. The employer must pay the difference if total income does not add up to $7.25 per hour

$7.25 per hour for 40 hours = $290

VendicarD
3.7 / 5 (3) Dec 16, 2012
Exactly right.

"Well, so we can extrapolate this insight further:" - ValeriaT

Your entire comment gets a perfect 10.

Well done.

VendicarD
3.4 / 5 (5) Dec 16, 2012
It seems to me that rather than whining, RyggTard should either find this woman a better job - given that his Randite ideology is what has caused America's great recession - or work to increase the generosity of those government handouts that she relies upon.

"The check shifted her — by one dollar — into a lower food stamp bracket, which made it tough to buy enough groceries to feed her family." - RyggTard

But whiners like RyggTard will just whine.
kochevnik
3 / 5 (6) Dec 17, 2012
"Today, the U.S. has lost one out of every four manufacturing jobs that existed before NAFTA – over 5 million with 42,000 factories closed. A modest trade surplus with Mexico was replaced with a large, persistent deficit.

U.S. real median wages now hover at 1972 levels with levels of income inequality equalling those of the pre-New Deal state.

It not only removes the risks usually associated with offshoring production to low-wage countries. It also allows foreign corporations investing in the U.S. extra-legal rights to dispute American environmental, labor or consumer protections in foreign tribunals favorable to corporate interests, to demand taxpayer compensation for having to meet the same norms as domestic firms."

http://www.salon....nership/
VendicarD
3.7 / 5 (3) Dec 17, 2012
Today, the U.S. has lost one out of every four manufacturing jobs that existed before NAFTA – over 5 million with 42,000 factories closed. " - Kochevnik

And how many more were lost to the Pacific Rim, India, and Africa both before and after NAFTA?