Does long-term unemployment hurt a person’s chance of returning to the work force? According to a 2012 analysis by the U.S. Congressional Budget Office, long-term unemployment may “produce a self-perpetuating cycle wherein protracted spells of unemployment heighten employer’s reluctance to hire those individuals, which in turn leads to even longer spells of joblessness.” But despite widespread concern about this cycle of long-term unemployment, it has been difficult to credibly establish whether this challenge actually exists.
In response, Kory Kroft (University of Toronto), Fabian Lange (McGill University) and J-PAL affiliate Matthew Notowidigdo (now at Northwestern University) conducted a randomized evaluation testing the impact of the length of job applicants’ unemployment spells on firms’ callback decisions. Using a major online job board in the United States, the researchers sent roughly 12,000 fictitious resumes with randomly varied employment statuses and unemployment spells to 3,000 job openings—four resumes per job. For each job, researchers constructed two high-quality resumes and two low-quality resumes. Researchers also randomly assigned each resume’s employment status and, if unemployed, the length of the current unemployment spell. By randomly varying employment characteristics across high and low-quality resumes, researchers were able to isolate the effect of unemployment spells on firms’ callback decisions.
Overall, the evidence from this study demonstrates that longer unemployment spells reduced interview callbacks, potentially because employers consider long unemployment to be an indicator of low worker quality. Over the first eight months of an unemployment spell, the likelihood of receiving a callback from employers sharply declined the longer an applicant had been unemployed. Past eight months, more time spent out of the workforce did not continue to reduce callbacks. In addition, researchers found that this effect was stronger in a tight local labor market where fewer workers were likely to be unemployed and among young job seekers with limited experience. Future research is needed to examine how duration dependence affects older job seekers.
Study Cited: Kroft, Kory, Fabian Lange, and Matthew J. Notowidigdo. 2013. “Duration Dependence and Labor Market Conditions: Evidence from a Field Experiment.” The Quarterly Journal of Economics 128: 1123-67.