How long-term unemployment is affecting the job search

Source: The Globe And Mail

What is the only thing worse than unemployment? Long-term unemployment, apparently. If you lose your job, there are a bunch of hardships you are inevitably going to endure until you find a new one. If you do not find a new one in a hurry, you may face the additional hardship of not finding one for an increasingly long period of time. Employers, it seems, view people who have not held a job with an eye that increases in wariness in proportion to their joblessness.

The insights come from an upcoming paper by Swedish economists Stefan Eriksson and Dan-Olof Rooth, which is to be published in the American Economic Review and was quoted in a blog in this week’s Wall Street Journal. The economists used Swedish data on calls returned to job applicants, sorting job seekers by duration of unemployment. What they found was that being unemployed for a short period of time made no difference at all to job seekers’ prospects, but that being unemployed for longer did.

Actually, it made a difference for workers who were applying for jobs that did not require a college degree, who saw their returned calls decline by 20 per cent. Workers who were applying for jobs that did need more education did not see the same decline in response, although it is difficult to know why. The old rule of thumb is that for every $10,000 you earn, it takes a month to find a new job so perhaps those seeking more educated, higher-wage employees realize they are interviewing people in a more selective, slower job market. Perhaps, too, there is a realization that higher wage workers may have left their last positions with a hefty goodbye package and hence may not be in as much of a hurry as those with more modest skills.

At any rate, the study says little about who actually got hired, just who got in the door. As well, although the Swedish economists believe their research has implications for the U.S. as well as Sweden, it is not hard to believe that the latter is a kinder gentler place than the former, which has gone through a brutal recession. Even in (relatively) kinder and gentler Canada, it seems likely that those with a long period of unemployment on their resume are going to get a harder look than those who are fresh from previous employment, whatever their level of education.

The good news, if there is any good news in the context of unemployment, is that over this business cycle, long-term unemployment has been a considerably less severe problem in Canada than it is in the United States. According to Statistics Canada, as of June, 2013 (the last month for which Canadian data is available), the average duration of unemployment in Canada was 18.3 weeks. In contrast, the average duration of unemployment in the U.S. was 35.6 weeks. In the Canadian case, the figure has not changed too much from before the recession. In June, 2008, the average duration of unemployment in Canada was 13.9 weeks, suggesting a lengthening of about 50 per cent. In the U.S., the length of unemployment has effectively doubled. As of June, approximately 19.9 per cent of the unemployed in Canada were without work for 27 weeks or more, while in the U.S., the figure was 36.7 per cent.

The duration of unemployment is a key indicator to watch. There has been much ado about the improvement in the U.S. labour market, and it is certainly true that the unemployment rate has dipped sharply. As of July, the U.S. unemployment rate was 7.4 per cent, compared to 10 per cent at its peak in October, 2009. Still, over that same period, the duration of unemployment has increased by about 9 weeks, and is coming down very slowly (by about 4 weeks over the past two years). Until this indicator shows an improvement, it will be hard to say that the malaise in the U.S. labour market has lifted, and with it much of the concerns about the global economy that are keeping everybody’s interest rates, including Canada’s, on hold.