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On How Teenagers Are More Employable Than Unemployed Adults…Or Something Like That??

August 17th, 2010 · 6 Comments
Macroeconomics · Policy · Press

Yesterday I was quoted in an AOL Jobs article:

With five unemployed workers for every job opening, it’s unlikely that jobs are going unfilled because people are at home sitting on the couch collecting their unemployment checks, even with the disincentive to find work, said economist Jodi Beggs, in an e-mail interview with AOL Jobs. Beggs also pointed out that unemployment benefits improve the ability of people to find work. The money allows job seekers to pay not only their household costs, but also job-seeking expenses such as child care, transportation, clothing and other expenses.

Instead of having to accept a lesser-paying job out of necessity, unemployment benefits allow workers to be choosy, Beggs said: “Unemployment benefits in part give workers a bit of leverage with employers and some freedom to find a good job match rather than take the first thing that comes along. This dynamic is potentially in the best interest of the economy in the long run, but its easy to see it in the short run as employees being lazy or too picky.”

The good news is that I wasn’t misquoted. The bad news is that nothing I was quoted as saying is very interesting. What I emailed to the reporter was the following:

The simple answer is that yes, offering unemployment benefits reduces the incentive to find work. (This is simply due to the notion that it is nonsensical to think that people would try harder to find work if they were getting paid to stay home.) However, that is not the end of the story. First, while the benefits may decrease motivation, it also increases the ability of people to find work. This is because there are certain costs associated with job seeking, such as childcare, transportation, suits, etc., and having some form of income makes the logistics of the job search easier, especially if a household has to contemplate moving in order to find work. In addition, given the ratio of unemployed people to available jobs (about 5 to 1 last time I checked), it’s not likely that jobs are going unfilled simply because people are at home sitting on the couch collecting their unemployment checks, even with the disincentive to find work. Labor markets are more nuanced than what an aggregate measure of unemployment can convey, and the causes of persistent unemployment are likely different in different markets. For example, highly skilled workers who can’t find work in their fields are even finding it hard to “downgrade” to lower paying jobs, not because they are unwilling but because employers don’t want to hire an overqualified person who will likely leave when the economy improves. In other markets, employers seem to be looking to get a bargain by lowering compensation under the assumption that unemployed people will be happy to take what they can get. While this often makes sense economically (and could even allow employers to hire more people at a lower wage), workers tend to balk at these sorts of practices. Lastly, unemployment benefits give workers a bit of leverage with employers and some freedom to find a good job match rather than take the first thing that comes along. This dynamic is potentially in the best interest of the economy in the long run, but it’s easy to see it in the short run as employees being lazy or too picky.

Okay, fine, this isn’t particularly interesting either, but it got me thinking about this whole unemployment deal. Managers facing tough economic times have a number of unpleasant options. One of these options is to produce less output and lay off the people who are no longer needed to produce the new quantity of output. (Note that this option would keep the pay of those who are retained roughly the same as before.) Another option is to reduce the hours/workload of workers and/or reduce their pay. This option would allow the company to keep everybody on in some capacity, but it doesn’t happen as often as might objectively make sense. This is probably because workers get very cranky when their wages get cut, and it could make sense to have, say 10 percent of your workers laid off and really upset (but out of your hair since they’re not there anymore) than to have 100 percent of your workers pissed off but still at work. Because of this tradeoff, the employer has an incentive to pursue a policy that is less fair than he or she might otherwise like. Therefore, I don’t have a particularly strong moral objection to tax dollars (disproportionately contributed by those who are still employed) being put towards unemployment benefits, but it’s still important to understand the causes of unemployment and the effects of such benefits.

I read a lot of stories about people who claim to be unemployed because they can’t get a job that they are qualified for but also can’t downgrade because employers fear that they will leave at the first opportunity or be difficult or entitled or whatever. I’m not entirely sure how I feel about these claims, but I do know that I find the following graph from the New York Times Economix blog pretty interesting:

(Note that the measure on the y-axis is a little odd and requires some thought.) If employers are concerned about people leaving after a short period of time, wouldn’t they be unwilling to hire the school-aged (age 16-19) kids? After all, they are the ultimate short-term employees. I do notice that the seasonal increase in this employment is smaller in worse years (2008-2010) than in previous more prosperous years, but it’s not like companies have stopped offering summer employment because they have plenty of adult workers to fill those spots. It’s hard to argue that these school-aged individuals getting this employment are more qualified than all of the unemployed adults, so there has to be some other explanation.

One explanation is that these jobs are seasonal themselves (lifeguard, ice cream truck driver, who knows) and unemployed adults don’t want to take them because they aren’t permanent employment solutions. This is fair if the summer jobs could jeopardize the possibility of future unemployment benefits. Another explanation is that employers really are worried about hiring adults for “kid” jobs, either because the adults just don’t fit the desired profile (which is technically a form of age discrimination) or because the employers are worried that the adults might become disgruntled and difficult to work with. Note that the first explanation is a supply issue (since people are the suppliers of labor) and the second explanation is a demand issue (since employers are the demanders of labor). As such, I am skeptical of any reports that unemployment is solely either a supply or a demand issue.

On the incentives front, I tend to take a “people in glass houses” approach- helpful or not, I would probably stay on unemployment rather than take a job at McDonald’s (apologies to Mickey D’s for using you as the representative crappy job- I very much enjoy your products every once in a while and even had a McFlurry just yesterday), so I can’t really judge on an ethical basis. Let’s just say that you probably wouldn’t want me as an employee anyway and leave it at that. 🙂

Tags: Macroeconomics · Policy · Press

6 responses so far ↓

  • 1 Marc // Aug 17, 2010 at 7:30 pm

    I posted a comment to your Facebook post, but thought I would add here that companies that hire teenagers and seasonal workers have built-in to their budget the associated costs for high turnover. Generally the learning curve is low and they don’t want to retain people for too long unless they feel that a person has the potential to move into a supervisory or management position. This is because keeping an employee for too long will eventually cause them to pay that employee for the accumulated experience, which will affect the budget for that department. Keeping a disgruntled, but experienced, employee around can fuel discontent in the overall employee morale.

  • 2 Eddie Dillinger // Aug 17, 2010 at 8:45 pm

    Jodi, I concur. I was offered a job in early 2009 making $7.50/hour at a gourmet burger joint call Flip. I decided to keep the unemployment check until something better came along. With a winning sales resume I had 3 job offers in a month (and an insane ability to camp craigslist and hit the refresh button all day on the the job boards to get first in line) and moved on to greener pastures having only collected two checks from Uncle Sam. Thanks for helping me in my time of need America, but I don’t watch TV and sleep all day while waiting for handout.

  • 3 Amarsir // Aug 18, 2010 at 8:17 am

    Considering that you don’t have a lot of space to expand, and that what you do say will get chopped, I thought it was a good statement.

    Employees are not a simple gradient. A 35-year-old engineer may not be a better hire than a 16-year-old student, even at the same pay. Temporary loyalty might be an explanation, and as could age discrimination, but neither of these need to be true. We should be able to accept that there is an answer without being able to articulate it.

    On the other hand shouldn’t we also consider that unemployment benefits, by allowing workers to look for “their” job, can disincentivize the economy from making necessary changes? In terms of wage pressure, skills offered, consumption behavior, or various other things, sometimes the supply and demand curves need to change and a support payment can undermine that.

  • 4 Devin // Aug 18, 2010 at 11:40 am

    You’ve left out a couple of practical reasons why a teenager would be a better hire than an experienced workers: Experience ratings & Tax credits.

    As an employer, your “experience rating” determines what percentage of your payroll must be paid into the unemployment insurance system. Your experience rating is determine by how much money is paid in unemployment to workers you lay off. Students can’t collect unemployment, experienced workers who aren’t students can. So, by hiring students you can maintain a good experience rating. By hiring laid-off aerospace engineers to stamp hands at your amusement park, you hurt your experience rating which costs you more money. And though aerospace engineers are generally very smart, competent people, their skills are of little value at making them better at stamping hands at amusement parks. Strike one against experienced workers.

    Also, there are Work Opportunity Tax Credits available to businesses specifically for hiring students for summer jobs. Similar credits have been made available for the long-term unemployed, but they have far more stringent criteria, so it’s hard to know if a worker will qualify (and whether or not it’s legal to ask is something employers are frequently worried about). If you’re hiring a high-school student on summer break, it’s fairly predictable this person will qualify you for a tax credit. Strike two against experienced workers.

    Throw in other potential downsides already discussed here (low morale of an aerospace engineer reduced to stamping hands, for example), and you’ve got 3 strikes against an experienced worker. If I was hiring for seasonal jobs that required little or no training, I would choose the teenager over the aerospace engineer, too.

  • 5 Joao Pedro Afonso // Aug 18, 2010 at 5:02 pm

    Hi Jodi, could you elaborate more on this phrase of yours, “This is fair if the summer jobs could jeopardize the possibility of future unemployment benefits”?

    I find your text extremely interesting and rich, but while you said the “unemployment benefices” function like a safe-guard against any outrageous employment proposals, I think you didn’t elaborate there, about loosing or hurting those benefits in the future which, if I’m understand rightly, would serve too as an extra pressure to the candidate to find its right deal. I’m not familiar to the U.S. system (or any system for the matter), but can not exist here, an angle too? I find particularly intriguing your explanation because what appears from the model you describe is one where employers has to compete with those benefices to gain employees. Am I right to assume that in the United States, there is no minimum wage as in Europe (at least in the country I live)? Because those benefices will ultimately work as a virtual minimum wage law, imposing a silent minimum level of wages! And then the discussion will move out to the necessity or not, of such minimum level, for an healthy economy.

    About your example, I’m out of the fiscal complexities known by your commentators, which could or not, influence the employment curves in the Summer. My feeling is that, besides corporations well versed, likely not many employers will be familiar with those complexities (but my vision of America is all about films, so do not trust any of it). What is not a feeling, is the conviction that there is another factor missing from the discussion (unless I’m doing a cultural gaffe): during school times, the majority of the 16-20 years population is likely committed to school; in the Summer break (assuming you have one), that population is released from it and can offer their services if they want… if school stopped for good and we had work for all, the logical ratio would have be close to one, more even, if the demographic age pyramid is not inverted. But, in the curves shown, it doesn’t surpass .55 (~.40 now).

    So what I see here in the graph is the younger ones being employed well bellow their potential supply, not above, which undermines the need of the kind of explanations you have been searching. Agreed, that supply depends on the intentions of the youth and how eager they want to work in Summer time but, without that established, we can not proceed further in the explanations.

    I have a couple more ideas in the line of your explanations (assuming there is a flaw in my previous argument).

    One idea is tradition: in a strong economy with full employment, seasonal works will only succeed when there are seasonal employees… in the Summer break, the obvious ones will be students out of school. Once established as the natural workers for those seasonal jobs, they will be preferred, even if economy slows down, and the unemployed starts to compete more strongly in those jobs market (can we use this to explain the progression from .54/2006 to .40/2010 in the graph?).

    The second idea is about the seasonal nature of those jobs. Some, far from be directly Summer related, will be substitution jobs to take in account employees which take vacations. These will not be considered unemployed, and the ones which will take their jobs will not too (They take the same job slot, at the same time, but they are accounted twice for statistical effects,… my head is spinning). These are jobs with a very specific term time, and I guess, not very appetizing for more permanent prospective workers.

    So, what I presented is the idea that, first, in the Summer, the structure of the worker’s supply strongly changes. Second, the Economy is aware of that change and uses it wisely.

  • 6 Patrick McCann // Aug 18, 2010 at 5:14 pm

    Wow, I thought that five unemployed for every available job silliness had already been widely debunked (e.g. http://www.cato-at-liberty.org/2010/07/27/no-there-are-not-five-job-seekers-for-every-job-opening/). Supposedly, last month 4.5 million jobs were filled but there were only 3.2 million ads.

    On another note, this has kicked up a whirlwind of blogging activity, with such greats as Greg Mankiw completely misreading the Y axis (“if aggregate demand were the main constraint on employment, this increase in supply should not translate into higher employment during deep recessions such as this one. But it does!”).

    The y axis graph simply represents the proportion of teens to young adults working, and in the summer this has to go up, simply because teens are off school . The fact that the current level (.4) this year, is lower then boom time (2006 ~= .55), indicates exactly what we would expect, that teens indeed ARE having a hard time competing with all those unemployed workers out there.

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