Your Friends Are Keeping You Unemployed

OK, the headline overstates the case a bit. But the same way that having heavy friends makes you more likely to put on weight, having unemployed friends makes you more content to remain unemployed, according to a new World Bank study (via Economix):

The lesson to be drawn by these findings is that one's employment decisions have a strong externality on other's labor supply and job search effort, through comparison effects. Upon losing a job, if a relevant other is also jobless then both individuals search with less intensity. In the opposite scenario, if all relevant others are employed, search intensity increases for the unemployed...

If others are unemployed, I will search less and extend my unemployment duration, in turn affecting others' return to work.

This makes sense, and it's both comforting and unnerving. It's comforting to know that having company in the struggle against unemployment can ease the psychological trauma, which can be very real indeed. But it's unnerving to think that communities of underemployed people can marinate in a kind of dreary stasis.

Chronic under- and unemployment has long-term implications. Skills atrophy. Workplace savvy dulls. Medium-term wages deflate. Today, the economy isn't producing enough open positions for the 16 percent of the economy that either has no jobs or has been pushed to work part-time -- no matter how they feel about being unemployed. But when the job market starts to recover, pockets of blithely underemployed folks represent wasted potential to work and capacity to consume products with the money they earn.