Can't Work, Can't Get Work: The Unemployment Trap

From the New Republic |by Jonathan Cohn | August 3, 2010

Two years ago, Alexandra Jarrin had a corporate job outside of New York City that paid $56,000. Now she's out of work and, having depleted 99 weeks of unemployment benefits, out of money, too. The New York Timesprofiles Jarrin today and, in so doing, does more than provide just another case study in struggles ofunemployed Americans.

Jarrin always worked hard: She got her college degree well into adulthood, while working full-time, and last year she was trying to get an MBA remotely when, overwhelmed by her sinking finances, she dropped out. Ineligible for most public assistance, since she has no children, and evicted from her apartment, she put together $260 to cover a week in a hotel. “Barring a miracle, I’m going to be in my car,” she told the Times, though it sounds like the car may get repossessed.

Stories like this are all too familiar now. But what really got my attention were the descriptions of Jarrin's efforts to find work, including minimum-wage jobs.

From the Times story:

...in her drab motel room, Ms. Jarrin has been spending her days surfing the Internet, applying for jobs. ... She has been struggling with new obstacles, like what to do when an address is required in online applications. She is worried about what will happen when her cellphone is finally cut off, because then any calls to the number she sent out with her résumés will disappear into a netherworld.

The news, however, has not been all bad. She had her first face-to-face interview in more than a year, for a coordinator position at a nonprofit drop-in center, on Monday.

It stuck with me because of something Paul Krugman wrote last week, while citing some writing by Mark Thomas and David Altig.

Generally speaking, unemployment tracks job availability. If fewer people have jobs, that's because there are fewer jobs to have. But the data from this recession suggests the relationship isn't as close as it used to be. The economy actually has available jobs--more, at least, than you might expect. But employers aren't filling those vacancies.

What explains the shift? One factor might be a change in the way people are describing themselves. Because we've made unemployment benefits are available for longer than they have been in past recessions, and because you can't collect benefits unless you are, at least in theory, seeking work, people may be more likely to describe themselves as "unemployed." In past recessions, these same people may have simply stopped looking for work and, thus, dropped out of the work force altogether.

But there's also the possibility that long-term unemployment has become a trap: Once you fall in, it's awfully hard to get out. Gary Burtless, the Brookings economist, sketched out this theory to me via e-mail:

The really attractive job candidates find employment sooner than the less attractive candidates.  This may mean that the longer the duration of unemployment, the higher the proportion of really attractive laid-off workers who have already been snapped up by employers, leaving a steadily less attractive (or less eager) pool of job seekers.

Employers unconsciously (and perhaps unfairly!) ... hire workers from the ranks of the unemployed with that bias in mind.  Two job applicants, both with identical qualifications but with unequal durations of unemployment, apply for the same job.  The employer hires the applicant with 6 weeks of unemployment in preference to the one with 8 months of unemployment with the rationale that the one with a shorter duration is the stronger applicant.  Not as many employers have previously rejected this applicant.  The one with a longer unemployment spell may be less eager for work, may not have tried as hard in his job search, may have some hidden problem that is not visible in his resume and job application.  ... the long-term unemployed are “stigmatized” by the fact they have been unemployed a long time.

Burtless noted that, based on the data, we can't be sure how valid this explanation is. But it's intuitive and it seems consistent with stories like Jarrin's.