The persistent high level of unemployment in the six years since the Great Recession began is fast becoming the defining theme of this generation — and a leadership imperative that can no longer be ignored.
Friday’s news on job growth is good: an increase of 288,000 jobs this past month, bringing the unemployment rate to 6.3 percent, well down from its 30-year peak of 10 percent. The number of discouraged workers who want a job but have given up trying to find one is unchanged, however. When we include those in the mix, we’re still left with about three available candidates for every job vacancy out there.
The three and a half million people who remain “long-term unemployed” — that is, who have been out of work for more than six months — represent more than a third of unemployed workers. This is the highest it’s been since the Great Depression. Being out of work that long creates many problems, such as a loss of housing or health care, that not only cause hardship for individuals and their families, but also place even more burdens on public and private support systems.
Yet the tools for addressing the long-term unemployment problem are within our grasp. And chief among them is for employers to move past the stigma that the unemployed are somehow less qualified to hold a job. That bias persists in corporate human resources departments, but it is unsupported by evidence.
It’s maddening to see such imaginary fears become real barriers to solving our employment crisis. A field study by Northeastern University economics Ph.D. candidate Rand Ghayad and another led by Kory Kroft at University of Toronto sent out fake resumes to employers. The studies found strong evidence that employers’ willingness to consider applicants dropped like a stone after the candidates had been unemployed for six months. The companies actually preferred candidates with no relevant experience to those with a background in the field but who’d been out of work for a stretch.
Corporate leaders haven’t always viewed unemployment this way. Traditionally when the economy improved and created new jobs, businesses would look to the ranks of the unemployed to fill them. Until the mid-1980s, the term “layoff” actually referred to a temporary job loss — and employers were expected to rehire these workers as soon as the economy turned up again.
But by the 1990s, that stopped happening, and the term became a euphemism for permanent job losses instead. This coincided with the “jobless recoveries” that have accompanied every recession since then.
So if employers are not rehiring from the ranks of the unemployed now, how do they fill new jobs? By hiring from each other. This nonsensical game of musical chairs (I hire your workers, you hire someone else’s, and then they try to hire mine) would seem to be unsustainable. Sooner or later, one might think, employers will start to see the unemployed as a valuable alternative.
But in fact, they haven’t. Vacancies are simply staying open longer as employers wait to find individuals who are willing to move from other companies. And it has become so prevalent for employers to reject unemployed job candidates outright that last year the Equal Employment Opportunities Commission threatened to start investigating these cases.
Why won’t employers take long-term unemployed candidates more seriously? The reason has much to do with simple bias, and little to do with hard evidence.
One myth about the unemployed is that something must be wrong with a person who lost his or her job. The economists Bob Gibbons and Larry Katz found evidence of this when they studied how people who were laid off because their plant closed — an event that clearly wasn’t their fault. They had an easier time getting rehired than those who were laid-off for other reasons.
Meanwhile, the most intense bias against the long-term unemployed seems to be the result of yet another myth: If they were good, someone else would have hired them by now. All it takes is for enough hiring managers to think this same way, and no one would ever get a job.
The final reason for bias against the long-term unemployed is the notion that their skills must have gotten out of date by not working. That might be true for surgeons, whose manual dexterity can decline quickly, or maybe in tech fields where software has advanced to a new generation.
But few jobs are like that. Studies have found that the performance of new hires who had been unemployed for a long time was no different than that of new hires who came directly from jobs elsewhere. In fact, most jobs are so routine that taking a break from them — a sabbatical — is actually a good thing for improving work performance. Ironically, so few employees learn new skills on the job these days that it's much more likely that an unemployed person might have expanded his or her skill set, either by taking classes, mastering new software or learning new marketing techniques in the course of extended unemployment.
Ruling out job candidates because they have been unemployed imposes big costs on both citizens, who remain without jobs and income, and on the economy — not to mention on employers who are losing out on an entire population of talented candidates. There is no justification for doing it. In fact, it’s a form of discrimination.
Responsible business leaders should, at the very minimum, tell their human resource departments to update their hiring policies so they don’t filter applicants based on current employment status. The biggest problem is likely to be overcoming the prejudices of hiring managers, who often have little information about the real predictors of job performance and so rely on these false assumptions that unemployed candidates probably aren't good performers. A simple statement from leadership that this is not the case is often enough to change their approach.
Moreover, corporate leaders should support policy changes that provide tax credits for hiring the long-term unemployed. The credits would incentivize employers to look past their own biases, and would cost the government nothing unless an eligible candidate is hired. I reviewed the research for a group called the National Employer Opportunities Network, and we found that such tax credits are a cheap and ultimately beneficial way to move people off government programs.
Plus, in the process, it may actually increase total employment — and help stop the pointless game of musical chairs that hurts rather than helps everyone.
Peter Cappelli is the George W. Taylor Professor of Management at The Wharton School and Director of Wharton’s Center for Human Resources.