Stop the Unemployed from Becoming Unemployable

As the duration of unemployment rises, the probablity of finding a job falls rapidly:

Will Today’s Unemployed Become Tomorrow’s Unemployable?, by Catherine Rampell: Lots of smart economists and policy makers have been debating whether the problems in the job market are primarily cyclical (that is, temporary, and related to slack demand) or primarily structural (that is, reflecting a deeper problem in the economy, such as a tougher mismatch between the skills employers want and the skills workers have).

But this discussion largely misses an important point: Cyclical unemployment can become structural unemployment because perfectly good workers become less employable the longer they are out of work.

Economists have long known this to be the case, and have documented that the likelihood of finding a job falls drastically the longer a person has been unemployed. The ... University of Chicago’s Robert Shimer ... found that 51 percent of workers who had been unemployed for one week obtained work in the following month, but the share declined sharply after that.

“For workers with duration less than six months, the job finding probability averages 31 percent,” he writes. “It falls to 19 percent during the next six months and just 14 percent for workers who have been unemployed for over a year.”

In other words, in recent decades, a person out of work for a week was nearly four times as likely to find a job the next month as a counterpart who’d been out of work for a year. ... [note: there are graphs showing this relationship in the original post; see here too.]

The exact reasons why the long-term unemployed have more trouble finding work ... are hard to disentangle. To be sure, there might be some differences between the types of workers who are short-term unemployed and those who are long-term unemployed. The better workers are more likely to get hired faster...

But the experience of unemployment itself also seems to damage workers’ prospects. First of all, employers will look at a yawning gap in a worker’s resume and wonder why no one else would take this applicant. ... The fact that a person has been unemployed for so long ... is a signal that something is defective, even if the defect is not obvious to the naked eye.

Employers may also worry that jobless people have gotten out of the habit of working... Unemployed people are also more likely to be depressed and to suffer from low self-respect, characteristics that may make them interview poorly. Other types of skills may atrophy ... and their Rolodexes become dated.

Of course, when the economy is booming and the supply of workers is extremely tight, employers are less picky, and to some extent the marketability issues will fade. But the ... effects of long-term unemployment may be ... permanently scarring. ...

I believe that the unemployment problem is predominantly cyclical, but this helps to explain one of the reasons why, even if the problem is largely structural, we still need to try to help -- structural unemployment is not an excuse for inaction as some have claimed. If we don't find a way to provide jobs for people while the cyclical and structural issues work themselves out, if we allow high unemployment rates to persist, some of the long-term unemployed will drop out of the labor force permanently. Thus, one of the costs of high unemployment is that some people will leave the labor force and never work again.