How do you think of a
loose monetary policy, ultra-low interest rate with benign inflation
environment, will it impel a big boost to perennial long-term joblessness? Wall
Street journalist wrote an intriguing article about Fed debate on this issue on
June 19 2014.
According to the Wall
Street Journal, there are two camps. One led by former Obama’s economic
advisor, Mr Alan Krueger. In his Brookings
Institution study, he found that around 11% of the unemployed(>1/2
year) measly got a full time job within 15 months; and about a quarter had part
time job, the remaining unemployed (about two-thirds in the survey) had either
given up job search completely or staying unemployed. In his follow up work,
the results were not any better. Only 22% long-term unemployed since 2008
recession returned to full employment. He arrived at the conclusion that
unemployment is still hither and thither, and accented that a different set of
tools might be more effective given the context described above prosaically
didn’t crank enough promising job gain for long-term joblessness.
Another camp in the
ructions led by Fed Chairwoman Janet Yellen and some other Fed economists. MS
Yellen specializes in labour economics. This camp’s imprimatur that by
moderating monetary policy, coupled with an economic environment which is
conducive, such as low interest rate and inflation, will strengthen the
economy, and ultimately those remaining unemployed will segue into catching the
last bus. Long-term unemployed exhibit immensely hidden labour supplies which
emasculate higher wages and inflation, and they conclude that there is no
necessity to raise rate anytime soon; whereas Mr Krueger thought inflation had
not been responsive to long–term unemployment because they are so detached from
the labour force.
There was other research
ran afoul to Mr Krueger’s view, according to Wall Street Journal, by Fed
economist Christopher Smith, he found unemployed for long stretches tended to
have better luck finding jobs after short-term unemployment had fallen. He is
probably one in Ms Yellen’s camp.
We are easily fixated by
our own view depending on our academic focus. That wrongheaded view also
influences our analysis, neglecting psychological factors underplay in the
micro environment which is crucial to the sticky problem, resulting an
imperfect solutions. Unencumbered by orthodoxy, I am particularly interested in
the issue from different perspectives, because I am one of the victims. I
participated in LinkedIn's group discussion with other long-term unemployed,
and am also interested in observing the trends worldwide how each country
rectifies the problem. I find the bane of assertions is the result of oblivion
to behavioural economics.
Many heard about
behavioural finance, few about behavioural economics. Let get back to the
debate, Ms Yellen’s camp assumptions hold that so long the economy keeps
strengthening, there will be more jobs created, and a stronger economy consumes
more labour supply, in a tighter labour market, long-term unemployed stand a
better chance eventually be drawn back to the job market. The reality is the US
leads the world in the road of economic recovery, why legion of above
expectation job creation, resulting in paucity of long-term joblessness
improvements? The stickiness showcases there are deep rooted cause neglected.
This deep rooted cause is the job market paradigm.
This ingrained paradigm,
to say the least, is the prejudice discriminates against the long-term
unemployed, resulting they eclipse to the bottom in the pile of candidate
selection. Not all categories are in dire straits. It depends on the nature of
job market such as blue collar or white collar categories, Junior or senior
position categories and industry differences. For example, in the country where
I live, the government to get rid of over reliant on foreign workers, imposes
higher foreign worker levies, issues fewer employment passes, sounds
xenophobic? On the other hand, reward hiring unemployed, such as cash bonus for
re-joining the job market, or rebate for hiring unemployed. The policy effect
is mixed.
For service sector which
demand greater manpower, low skill job, the employer has incentive to hire
senior workers (Low skill/ age discrimination is pertinent to high unemployment
in this category) the government crowed about the some successes in rehiring
senior worker basically belong to this category. For skilled worker such as in
construction industry, relying on foreign workers is almost indispensable.
Employers are in no choice filling the vacuum of time lag to train the
unemployed master the skills but choose to pay for higher levies. Other
categories of long-term joblessness are hardly moving. Resort to unruly
exogenous policy factors can only achieve result this far, that result speaks a
combination of circumstances. Don’t read too much of new-fangled labour
statistics without understanding the underlying root cause.
Suffice it to say, it is
more than just a grain of truth and is unimpeachable that discrimination is
rampant put long-term job seekers in dire straits. Most employers shun people
who are unemployed for various reasons.
First, the employer has
a big pool of candidate to choose from, they prefer to give opportunity to
those are still working. So, even the job market recovers, the odd thing is the
unemployed always rank the last among other candidates to compete for only one
opening, at this rate, what is the chance to catch the last bus; the long-term
unemployed are downright on an unequal footing with other candidates? They
cannot sue prospective employer for discrimination just because he being unemployed,
and, in the least, there is no concrete evidence to prove that, the whole
selection process is a black box!
Second, they are not
sure whether your skills are up-to-date. There is no guarantee you will be
hired because you keep yourself up-to-date. It is just to give the employer the
assurance of their money worth. And this assurance is weak. The employer
prefers to believe those still working are up-to-date though copious of
empirical evidence proves otherwise. There are certain jobs their characteristics
are going through routine cycle every day. There is little knowledge
enhancement in some jobs. To choose to believe your competency or not is up to
the decision maker, there is little help and is vulnerable on the unemployed.
It is the employer who calls the shot.
Third, working at senior
level even worse, many get the job through executive search firms; they
basically work for client rather than the candidate. The inclination is that it
is downright hard if not impossible for them (If they are saints at all) to
table to their client an unemployed for the position. The exceptions are:
usually a crapshoot when they seek candidate with unique industry experience,
or client lays down very harsh searching requirements, hard to find suitable
candidates or they resort to predatory behavior knowing you have fewer choices
left by denigrating you to a more junior position to showcase their client they
got a candidate is cheap and good for them.
Fourth, odds are that,
even leaving your previous employment is none of your fault due to
circumstances that many of us can’t control, such as organization
restructuring. The long-term unemployed are subject to even rigorous scrutiny,
sometimes unfounded suspicions; such as whether you are still vigorous and
active and ready to adapt to life change? All that said, in time, it becomes a
paradigm to reject unemployed outright.
The long–term
joblessness is unrelated to the economy boom or bust. The teething problem is
an attitude change that matters. To overcome discrimination hurdle, we need to
prove in reality there is not much difference in delivering result between
those in the job and the long-term unemployed.
To amplify incentive to
be more effective, it must fulfill several requirements: First, it must be
visible, a tangible benefit says more than thousand words; second, it must have
immediate benefit: you must not defer the benefits to the future period, so
that the benefit is visible at once to incite motivation reaching apogee. Most
employers will not dither to participate in the incentive scheme. If they can
see advantage is immediate; third, it is to serve the purpose of employment;
the long-term unemployed must deliver service reasonably to the satisfaction of
the employer
Instead of using tax
incentive, a nifty idea in my view is to set up a long-term unemployed rehiring
scheme Long-term unemployed is required to register under the scheme to deter
frauds and for further tracking. Under this scheme, a fund is setting up to pay
the unemployed salary in lieu 100% for the first three months and 50% for the
subsequent three months. The logic is to set up a trial period for hiring the
unemployed to prove to employer that there is not much difference in between
people in employment and those unemployed, the flimsy ideology of incompetency
of long-term unemployed is the culprit snuffing out long-term unemployed to
rejoin the job market. You can’t foist but coax employer to canvass their
support to give those unemployed a second chance, and they very much deserve
it. The idea is same analogy as any manufacturer marketing their new product, a
trial period at very low price is set for a period of time until the consumers
are addicted. I believe, in time to come, after six months, the unemployed new
recruit is pretty much clandestinely wired into the operation system. As year
go by, few will like to question the capability of long–term unemployed. By
doing so, the government can recoup some costs from savings of unemployment
benefit handout, in the US stance.
The implementation process
is susceptible to frauds, the first adulterated fraudulent practice is to spike dummy unemployed in order to claim
benefits, To scotch this fraud, money must deposit directly to the new
employee’s bank account, and this also accentuates the notion of "working
for free" in the mind of the employers. Another kind of fraudulent
practice is employer fires the unemployed every three months to gain advantage
of free worker service at the expense of tax payer's money. That is why
registration is important for verification, keeping track of the employment
record to blunt vile effects.
All told, behavioral
economics is, by far, offering trenchant enunciation better and allay the
plight of stickiness of long-term joblessness than other wan joblessness
theories which not one of them made the cut. It delves into the root cause of
the problem by changing the hiring party’s behavior to eliminate
discrimination.
