Long-term Unemployment and Perceived Marginal Value Product

Tyler Cowen and Bryan Caplan have been talking about the long-term unemployed and Zero Marginal Product workers. Cowen thinks the long-term unemployed have, or are perceived as having, zero marginal product, making them effectively unemployable, which is why employers won't even consider their applications. Caplan, on the other hand, says:

Put yourself in the shoes of an employer reviewing applications. What are you saying when you hastily toss an application in the trash? Consider the following possibilities:

1. "I perceive this applicant to be a ZMP worker."
2. "I perceive this applicant to have a MVP [EO: Marginal Value Product] below the wage we're offering."
3. "After a cursory glance at his application, I perceive this applicant to have a sufficiently high probability of having a MVP below the wage we're offering that collecting more information is imprudent."

My claim: #1 is a rare special case of #2, which is in turn a rare special case of #3. #3 is the generally correct story.

I think Caplan is right, as far as he goes. However, he misses that #3 is itself a rare special case of a fourth possibility: "After a cursory glance at his application, I perceive this applicant to have a sufficiently high probability of not being the highest MVP applicant that collecting more information is imprudent."

Consider that most applications are sent for a particular job position, either an existing position that has been vacated by a previous employee or a newly-created specific position. Most employers will be looking for the one best employee to fill that specific position. When that is the case, the employer can safely discard all applications that are unlikely to be that one best employee, even those applications that have a MVP higher than the wage offered.

The job application process is in this sense much like a tournament--only one can win. Indeed, tournament theory explains why the long-term unemployed are perceived to have lower MVP in the first place. Someone who has been unemployed for a long time has apparently lost a long series of application "tournaments." They are presumed to have lost because of a lack of skills and effort rather than a long streak of bad luck.