‘Contagious Unemployment’ May Be to Blame as Companies Struggle to Find Workers

HR manager conducting job interview with candidate on video call, COVID-19 pandemic concept.
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The latest theory on why companies are having difficulty finding new workers is “contagious unemployment,” according to a new working paper.

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Businesses recorded 8.1 million open jobs in April, up from 7.5 million in February. Unemployment rates continue to rise from 6% in March to 6.1% in April, according to Labor Department Data, as reported by MarketWatch.

Because of the unemployment rate and the growing number of help wanted signs, some states are offering return-to-work bonuses up to $2,000 to encourage people back to work. MarketWatch noted that Arizona is providing money to cover three months worth of child-care costs for returning workers earning less than $25 per hour.

It’s been hypothesized that federal unemployment benefits have given some people a reason to not return to the workforce.

A working paper published by the National Bureau of Economic Research has a different theory.

“Unemployed workers send over 10 times as many job applications in a month as their employed peers, but are less than half as likely per application to make a move,”  writes Niklas Engbom, an assistant professor at New York University Stern School of Business.

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“I interpret these patterns as the unemployed applying for more jobs that they are less likely to be a good fit for,” he added.

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Engbom also noted that during high periods of unemployment, it becomes more difficult for companies to determine who is a good fit for the position as workers pivot to other industries, reports MarketWatch. By raising the cost of recruiting, there is a “short-lived adverse shock” which has a negative effect on the job-finding rate.

Peter Cappelli, the George W. Taylor professor of management at the Wharton School and a director of its Center for Human Resources says companies should take more responsibility for the hiring process by offering jobs internally with more realistic requirements, added MarketWatch.

Businesses have never done as much hiring as they do today. They’ve never spent as much money doing it. And they’ve never done a worse job of it,” Cappelli claims.

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About the Author

Josephine Nesbit is a freelance writer specializing in real estate and personal finance. She grew up in New England but is now based out of Ohio where she attended The Ohio State University and lives with her two toddlers and fiancé. Her work has appeared in print and online publications such as Fox Business and Scotsman Guide.

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