RDP 1999-07: Job-Search Methods, Neighbourhood Effects and the Youth Labour Market 5. Conclusions

Australian and international evidence suggests that the most effective job-search methods are direct methods such as using family and friends for information or directly contacting employers. Over 60 per cent of Australian teenagers obtain their jobs using these methods, whereas only 30 per cent of unemployed Australian teenagers report these direct methods as their main method of job search.

We find that the single most important characteristic for explaining the job-search method choices of Australian teenagers is whether they receive unemployment benefits. Receiving benefits increases the probability of a teenager using the CES as the main job-search method by almost 20 percentage points, and decreases the probability of using direct methods or newspapers by around 10 percentage points each. Due to the means-tested nature of these benefits, this variable may be picking up unmeasured family characteristics. However, the fact that the CES offers a relatively easy way for benefit recipients to demonstrate that they are looking for work is likely to be a more significant effect.

Personal characteristics and family background are also important for understanding how unemployed teenagers search for work. In general, unemployed individuals with more highly skilled or better-educated parents are more likely to use direct methods than to use the CES. Males are more likely to use direct methods or the CES than newspapers as their main job search activity. Older unemployed teenagers are also more likely to use direct methods than the CES. Individuals who attended government school or left school in Year 10 or earlier have a significantly higher probability of using the CES and a significantly lower probability of using newspapers.

One reason why unemployed teenagers may not be using job-search methods which appear to be more effective for teenagers who actually found work, is that these methods have been tried and their possibilities exhausted. This is supported by the finding that unemployed individuals with longer unemployment durations were significantly more likely to use newspapers as their main job-search method and were less likely to use direct search methods.

Another interesting finding is that the local environment, especially the state of the local labour market, is important for explaining job-search method choice. Higher local unemployment rates decrease the probability that an unemployed teenager will use direct search methods, and increase the probability that they will use the CES. These results are consistent with the economic model developed in Appendix A, which highlights the importance of local job-information networks and local labour market conditions for explaining job-search behaviour.

An interesting implication of these results is that they help explain the recently documented evidence that unemployment has become increasingly concentrated in low-socioeconomic status neighbourhoods (Gregory and Hunter 1995). An adverse labour demand shock in one neighbourhood will raise the local unemployment rate and lower the probability that individuals in that neighbourhood will obtain work through friends and relatives or direct employer contact. This increases the incentives for people in these areas to search using general search techniques such as newspapers or employment agencies, but their overall probability of finding work could easily fall despite this. Thus, the effects of an exogenous shock can be magnified within neighbourhoods if job-information networks are local in nature and provide the most successful means of finding employment.

If this is an important part of the explanation for the increasing concentration of unemployment in low-socioeconomic areas, it suggests that it is important for government policy to improve the effectiveness of general search methods in these areas. Steps in this direction have already been taken with recent changes to the operation of employment agencies in Australia.