Home > Economic policy, Economics - General > Job search, yet again

Job search, yet again

August 1st, 2014

I got lots of very helpful responses to my recent post on the search theory of unemployment, here and at Crooked Timber. But it has occurred to me that I haven’t seen any answer to one crucial question: How many offers do unemployed workers receive and decline before taking a new job, or leaving the labour market? This is crucial, both in simple versions of search theory and in more sophisticated directed search and matching models. If workers don’t get any offers, it doesn’t matter what their reservation wage is, or what their judgement of the state of the market. Casual observation and my very limited experience, combined with my understanding of the unemployment benefit rules, is that very few unemployed workers receive and decline job offers, except perhaps for temporary work where the loss of benefits outweighs potential earnings. Presumably someone must have studied this, but my Google skills aren’t up to finding anything useful.

And, on a morbidly humorous note, it’s a sad day for the LNP when efforts to bash dole bludgers actually cost them support. But that seems to be the case with the latest plans, both expanded work for the dole and the requirement for 40 job applications a month. I’ll leave it to Andrew Leigh to take out the trash on work for the dole (BTW, his new book, The Economics of Almost Everything is out now).

The 40 applications requirement has already been the subject of some amusing calculations. I want to take a slightly different tack. Suppose (to make the math simple) that the average job vacancy lasts a month. There are roughly five unemployed workers for every vacancy, so meeting the target will require an average of 200 applications per vacancy. The government will be checking for spam, so lets suppose that all (or a substantial proportion) of the applicants take some time to talk about how they would be a good fit with the employer and so on. Dealing with all these applications would be a mammoth task. One option would be to pick a short list at random. But, there’s a simpler option. In addition to the 200 required applications from unemployed people, most job vacancies will attract applications from people in jobs. A few of them may be looking for an outside offer to improve their bargaining position with their current employer (this is a big deal for academics), but most can be assumed to be serious about taking the job and in the judgement that they have a reasonable chance of getting it. So, the obvious strategy is to discard all the applications except for those from people who already have jobs. What if there aren’t any of these? Given that formal applications are going to be uninformative, employers may pick interviewees at random or may resort to the informal networks through which many jobs are filled already.

Trying to relate this back to theory, the effect of a requirement like this is to negate the benefits of improved matching that ought to arise from Internet search. By providing strong incentives to provide a convincing appearance of looking for jobs for which workers are actually poorly suited, the policy harms both employers and unemployed workers who would be well suited to a given job.

Update I found the following quote widely reproduced on the web

On average, 1,000 individuals will see a job post, 200 will begin the application process, 100 will complete the application,

75 of those 100 resumes will be screened out by the Applicant Tracking System (ATS) software the company uses,

25 resumes will be seen by the hiring manager, 4 to 6 will be invited for an interview, 1 to 3 of them will be invited back for final interview, 1 will be offered that job and 80 percent of those receiving an offer will accept it.

Data courtesy of Talent Function Group LLC

Visiting the TFG website, I couldn’t find any obvious source. The numbers sound plausible to me, and obviously to those who have cited them. But, if the final number (80 per cent acceptance) is correct, then it seems as if the search theory of unemployment is utterly baseless. Assuming independence, the proportion of searchers who reject even three offers must be minuscule (less than 1 per cent).

  1. Julie Thomas
    August 9th, 2014 at 16:54 | #1

    @yuri

    Where are the jobs? Abbott did promise that jobs would appear – magically apparently – when the country was open for business.

    Has that happened?

  2. Mathew
    August 9th, 2014 at 17:36 | #2

    @Fran Barlow
    No argument from me that newstart should be higher than currently is, and you certainly shouldn’t be punished for earning cash whilst on it (so long as you pays your fair share for tax). Plenty of good ideas how this could be better managed.

  3. Mathew
    August 9th, 2014 at 17:42 | #3

    @Watkin Tench

    Capitalism, which I unabashedly support, hasn’t been able to provide anything like full time employment since the 1960s.

    Crony capitalism has maybe failed. Too many favours handed out to protect various industries or favoured constituents for these markets to be considered free. Note, that isn’t trying to imply all regulation is a bad thing, just that I think there is far too many of them placing far too many costs on employers.

  4. zoot
    August 9th, 2014 at 17:47 | #4

    @yuri
    People who are unemployed pay taxes as well (can’t escape the GST, excise on cigs, booze and fuel etc etc) and a growing number have already paid income tax for decades.
    I contributed to general revenue for fifty years. If I am now receiving some benefit from those contributions am I somehow irresponsible?

  5. Mathew
    August 9th, 2014 at 17:53 | #5

    @Collin Street

    Working imposes measurably higher direct-financial costs than unemployment. Clothing and transport are obvious, as is childcare, but there’s lots of other stuff like “less time to bargain-hunt” and “lunch costs increased”, not to mention some second-order things like a reduced availability for socially-valued-but-unpaid work [that will have to be made up for with… financial contributions?

    And you’re suggesting the individual is not as well placed to judge these costs and negotiate more appropriately than some FWA commissioner in Canberra? Contrary to your suggestion, rather than not having considered this, I believe individuals can best work this out for themselves

    Anyway, I’ll finish with this tomorrow, must be off for the evening.

  6. Collin Street
    August 9th, 2014 at 20:00 | #6

    Contrary to your suggestion, rather than not having considered this, I believe individuals can best work this out for themselves

    No, I think it’s reasonably clear that you hadn’t, in fact, considered the various factors that make the money you need to stay alive while unemployed less than the money you need to stay alive while working.

    Because if you had, you wouldn’t have written:

    If people aren’t dying on the dole, why would we accept they’re at risk working for less than current min wage but more than the dole?

    Which I think fairly clearly conveys the meaning of “I don’t know any reason that staying alive on the dole would be cheaper than staying alive while working”. If you had thought about — considered — the reasons that living on the dole is cheaper than working, you would have written something else, something that didn’t imply that such reasons didn’t exist.

    [you'll note that the bit I've quoted above is the bit I responded to the first time.]

    So. Mistake, on your part. Mistake of actually fairly common pattern, so some general advice.

    What you’ve done here — changed your opinion without realising it, and thereby presuming that your past opinion reflects your current one — is really easy, even by accident [particularly by accident!]: you need to watch out for it, because it’s only in retrospect that you’ll see your own mistakes, and if you miss too many of your mistakes you won’t be able to see the weak spots in your thinking and you won’t be able to proactively avoid mistakes going forward.

    We’ve all been there. Used to do the same. Still do do the same, tbh, but I try not to.

    A better answer would have been something like, “yes, you’re right. Now that I think about it …. but … and in general letting people work out their own choices based on their own preferences is better. Something I’ve long thought and it works here”. Or what-have-you. Sounds stupid, but verbal habits become mental habits, and becoming better at spotting your own mistakes is worth virtually any mental investment. Never too late, either.

  7. Ikonoclast
    August 9th, 2014 at 20:03 | #7

    @Mathew

    “If people aren’t dying on the dole, why would we accept they’re at risk working for less than current min wage but more than the dole?”

    First a technical clarification.

    There is a considerable difference between a near starvation single income and a living wage that pays the full reproductive cost of labour for a family. You need to understand that a survival income (for one person) is different from a living income that meets the full reproductive cost of labour for a family with children.

    The reproductive cost of labour requires enough income for a family to;

    (1) pay for food;
    (2) pay for accomodation;
    (3) pay for necessary utiliues (power, water etc.), transport and services.
    (4) pay for all costs of child rearing and education.

    Labour is only “reproduced” when one generation has raised the next generation of workers and they have entered the workforce.

    Many people only survive on the dole with other assistance. In many cases they still live with family who essentially provide subsidised food and accomodation. In other cases, they live with their own cohort pooling resources but not in a situation where they could have and raise children.

    Second – Why reduce minimum wages anyway?

    Your suggestion is clearly based on the assumption that reducing the minimum wage will increase employment. There is little or no evidence that this works below a certain threshold. There is considerable evidence that healthy wages boost aggregate demand causing most employers to hire to meet that demand, thus boosting employment.

    Why is reducing wages the only solution you can suggest? Why not suggest reducing capitalist profits and especially financial sector profits? That is the other real possibility. Reducing wages will reduce aggregate demand and generate a recession or depression. Remember, every wage is mostly spent immediately and thus keeps money circulating for real goods and services and so keeps the economy percolating. Every wage when spent is someone else’s income (a shopkeeper’s for instance).

    Raising wages (or the minimum wage and minimum unemplyment benefits) will move some social income from profits to wages and generate more aggregate demand via spending. Excessive capitalist profits (aside from the reinvestment in productive undertakings) are often “spent” in a different and less socially useful way. They are often “spent” in speculation and further financialisation of the economy. This results in asset inflation, stock market inflation, but not in extra production. Thus such spending generates less aggregate demand and less employment. The rich get richer (for a time, maybe even a generation) but the real productive base of the economy (labour force, capital equipment, infrastructure, health and education) all crumble away beneath and the nation heads for disaster in the long term. The USA is on this very trajectory right now.

  8. Collin Street
    August 9th, 2014 at 20:14 | #8

    > Every wage when spent is someone else’s income (a shopkeeper’s for instance)

    Which, by the way, is a pretty compelling reason not to tax consumption.

  9. Mathew
    August 10th, 2014 at 12:28 | #9

    @Collin Street Colin, for one reason or another, I am intimately aware of the cost differences between being unemployed and employed. And i still maintain the individual is best placed to judge the impact of this. I have not changed my opinion, we have simply explored the issue further.

    I note you have not addressed the concept of a one-size-fits-all edict coming from some commissioner in the FWA being the best way to limit what choices people can make.

    Anyway, back to my central point here, the post was questioning the use of the 40-jobs-a-month-search. I hypothesised this may be designed to ensure people cast the net wider and wider, eventually encountering jobs they otherwise would find unattractive. This may or may not actually happen.

    My personal opinion of the 40-jobs policy is it is destined for very limited success at best and likely to result in poor outcomes for those it is designed to motivate and the business community. Those job seekers the government actually has in mind, the “job snobs”, will simply game the system.

    @Ikonoclast I think we disagree significantly here. The only right people have to a wage that I see is the right to sell their labour to a willing buyer. That doesn’t extend to society decreeing support for your private decisions such as children. I have no issue with society offering support in such situations, in fact I like that my taxes make life easier for people to have children. I just don’t see a government role telling people what they can and cannot choose to work for. Workers are free to take or not take a job as they see fit. Don’t like the jobs you’re being offered, educate yourself, make choices that take you closer to what you want.

  10. Collin Street
    August 12th, 2014 at 09:36 | #10

    Sure. You can call it “exploring the issue further”, I can call it “something you knew but forgot”. All good?

    Anyway.

    The recent debate around guest-worker zones in the NT suggests that it’s the government position that 2% unemployment constitutes an incredibly tight labour market. Two percent unemployed each writing 10 apps a week is one job application per week for every five people in the workforce.

    It takes about half an hour on average to examine a job application, say. Once you’ve factored in downloading, reading, typing in the email address to the mass rejection email, and some extra processing for the ones worthy of consideration. No, call it fifteen minutes. Anyway… 150 applications/week, for someone full-time dedicated to the task, or 30 applications a day.

    If firms get applications in proportion to their current workforce, then… a firm of 150 current staff will get thirty applications a week when the economy is working at full speed and will need a person working one day a week just to clear the application email backlog.

    [or equivalently, one employed person handling email-deleting for every fifteen unemployed ones.]

    There is no way you can look at that and not conclude that Abetz has profound cognitive problems.

  11. Collin Street
    August 12th, 2014 at 09:55 | #11

    Sorry, that half-hour/app should be 15min/app. 7.5hr/day @4 apps/hr => 30 apps/day, or enough to handle the output of fifteen app-producers working at two a day.

    All this is assuming that _everything_ works in the government’s favour, that the unemployment rate falls to the lowest they can tolerate and that all the applications are are looked at.

  12. Ikonoclast
    August 12th, 2014 at 10:03 | #12

    @Mathew

    “The only right people have to a wage that I see is the right to sell their labour to a willing buyer.”

    So, this means that if there are no willing buyers then unemployed people should starve? Is that your position? If it is not, then you accept the necessity of welfare, in particular the unemployment benefit. If you accept this then you accept that it must be a living benefit for a single person (adequate for a single person to live on ie. have food, shelter and clothing at a bare minimum). If you accept that then you accept that wages below the unemployment benefit are unpayable in practice unless the wages income test on unemployment benefits is lenient. Otherwise, people will prefer unemployment benefit to working hard for the same money basically.

    As soon as you start making the above concessions and adjustments (unless you stick to “the unemployed must starve” line) then you are immediately in a more complex moral and economic environment. The simplism of your statement quoted above is shown to be inadequate to real analysis and policy.

    Your final statement is “Workers are free to take or not take a job as they see fit. Don’t like the jobs you’re being offered, educate yourself, make choices that take you closer to what you want.”

    Is a person free to not take a job if it means they starve? Have you ever tried starving? If you had you would find a lot of personal autonomous freedom disappears before the driving unstoppable necessity to eat. Starvation throughout history has routinely driven people to steal, murder and eat grass, straw or human flesh. The ambit of freedom of action shrinks to nothing in such circumstances. People become wholly driven by hunger. Also, is an impoverished person free to educate themselves? Not in your system and not in this system.They would not have the wherewithall for education.

  13. Julie Thomas
    August 12th, 2014 at 12:19 | #13

    @Mathew

    “Contrary to your suggestion, rather than not having considered this, I believe individuals can best work this out for themselves”

    Well that is just so wrong! What could possibly lead you to make such an irrational and uninformed statement?

    Have you not observed that people vary considerably in their ability to work things out for themselves?

    Even Hayek ‘knew’ that there are some people who were, in his opinion, unable to participate and should be provided with a safety net of some sort to keep them from bothering the good peeps. This idea that those who make poor choices are useless is just as irrational and lacking evidence as your claim, however.

    The very bad choices that I made throughout my life confirm for me that individuals can not always work things out for themselves.

  14. Collin Street
    August 12th, 2014 at 13:19 | #14

    30 apps a day is on the low side, but I’m working on the presumption that the government is expecting that the applications will all be treated seriously and at least somewhat considered: asking people to send in applications the government doesn’t intend that the employers read would be a malicious waste of time, so not a possibility I’ll examine further.

    [which incidentally means that the government expects every job in the country to be applied for every five weeks minimum, higher as the unemployment rate reaches up from 2% to levels the government finds acceptable. "You should all expect to reapply for your job once a month" -- unemployment rate of ~2.3% -- is probably a pretty good estimate.]

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