Uncertain Futures and Unemployment: How Employment Risk Increases Stress and Perpetuates Unemployment

Featuring
Susan Godlonton
University of Michigan

Anecdotal evidence suggests that unemployment and poverty are self-perpetuating, but what preserves these cycles? In a new paper, Susan Godlonton conducted an innovative experiment in Malawi to show how the uncertainty job seekers face prolongs their unemployment. She worked with a group of job recruits, and randomly assigning them 0, 1, 5, 50, 75, or 100 percent chance of receiving an alternative job, in case they were not hired for the job they initially applied for. Godlonton finds that job applicants facing more uncertainty -- those a low probability of receiving an alternative job -- made a much greater effort than those with a more certain employment future. However, their greater effort did not lead to a better performance. They were also much more stressed, and ultimately half as likely to be hired. Her work makes an important contribution, linking psychological insights about the effect of stress on performance to economic insights about unemployment cycles.