Compensation, Hiring, Motivation, Recruiting

Unemployment Extensions and How it Affects HR

Congress is conflicted and at odds over extending emergency unemployment benefits to the long-term unemployed. Extending unemployment benefits typically happens in times of long term economic downturns. The last few years, extensions seem to have become more of a way of life for millions of Americans that struggle to find work. Benefits have been extended numerous times. Some Americans have been eligible for nearly two years of assistance. How does this affect the HR function?

Increased Recruitment Difficulty

Supposedly, when the economy improves the need for extensions goes away. However, this recovery is more than five years old now, and there is no indication that the need to continue with extensions will end in the near term. The conventional thinking is that an emergency extension is the moral and right thing to do. But is it? A study released by the National Bureau of Economic Research last year concluded that the persistently high unemployment of the last five years can be blamed largely on unemployment benefit extensions.

Here’s what the study concluded. Extension of long-term unemployment benefits gives workers an option. They can decide whether to apply for extended benefits or continue seeking employment. What does this do to the Human Resources function with businesses? To fill open positions, they may be forced to raise wages in order to incentivize workers to take vacant jobs, according to the study. Business profits are reduced and consequently, businesses create fewer new jobs. The conclusion is that ongoing extension of long-term benefits has a negative impact on the labor market creating a vicious cycle of reduced demand for more labor.

Most Americans want to work and prefer the dignity of a job rather than collecting unemployment. Unemployment insurance has a place and a definite purpose. But extensions may be undermining the efforts of businesses to create jobs. Arguments will be made if continual extensions are actually preventing millions of unemployed Americans from finding gainful employment. Whether valid or not, one thing is for sure and that is that HR recruiting functions in most companies is taking on a heightened importance.

Managing the Stigma of the Long Term Unemployed

As the economy continues to improve, hiring has picked up, but not for the long-term unemployed that have been out of work for more than 26 weeks. There has been evidence that employers are overlooking unemployed candidates and this got the attention of the Equal Employment Opportunities Commission. There is a reluctance to hire those who have been unemployed for a while. Employers have been challenged with difficulty finding the proper skill sets, but the reluctance to hire those out of work for a long period of time has compounded the problem of finding the right candidate.

Why is this? After all there is no evidence that suggests that the long-term unemployed make worse candidates. Hiring managers are only human and often they go with their gut feel or what they think are “sensible” ideas about what makes a good candidate. Going with your gut in hiring decisions means going with all kinds of unsubstantiated and perhaps irrational thinking. Hiring managers will think about such things as “If they were good, someone else would have hired them” or “Their skills are rusty”. A skilled candidate isn’t going to lose their touch in six months, but this is often times how it is perceived

Another challenge for HR with continual unemployment extensions is to change the way they look at the long term unemployed. They need to recognize that there is no objective case in this economy for not considering a candidate who has been out of work for an extended period of time. Leadership needs to pave the way and point out that excluding such candidates is likely costing money and possibly creating a prejudice. Candidates who are long-term unemployed are persistent. Coupled with proper qualifications, they can be the perfect fit for job success.

Managing Unemployment Compensation Costs

Employers have some control over the unemployment compensation costs they pay annually. Some think that it’s a fixed cost of doing business, but it’s not. A company’s unemployment tax is impacted by actual claims experience. Simply put, the lower the number of claims, the lower the tax rate. The impact of how claims are managed will also impact an unemployment rate. HR departments can have a significant and very positive impact on unemployment costs.

So what happens when unemployment is extended? It can have a negative impact on unemployment compensation costs in the future. Seeing that some of the costs are borne by the employer, it’s safe to assume that continual extensions can have a detrimental financial impact to a company. Another human resource challenge takes on greater significance as they struggle to reduce the cost.

While Congress continues to battle over extending unemployment benefits to the long-term unemployed, the Human Resource function will continue to be further tested with recruitment and managing costs. It is possible that until we enter into a period of robust growth, extensions may become a way of life for millions of Americans that struggle to find work.

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