RDP 1999-07: Job-Search Methods, Neighbourhood Effects and the Youth Labour Market 1. Introduction

Survey data suggest that around one-third of teenagers successfully find work through friends and relatives, one-third find work by directly contacting employers and another third use indirect methods such as newspapers or employment agencies. In contrast, less than 10 per cent of unemployed teenagers report that they are using friends and relatives as their main job-search method, and two-thirds report that they are mainly using an indirect method of search. This paper examines what factors affect the way teenagers look for work in order to explain why we observe this behaviour.

To this end, a model of job-search behaviour is developed in which there are two job-search methods available. The first is a general job-search method whose success depends on aggregate labour-market conditions and the search effort chosen by the individual. The second is a local job-search method which only depends on local labour-market conditions, and its consideration is motivated by the possibility that information networks provided by friends and relatives are local in nature. Modelling the interaction of individuals, their neighbourhood and the aggregate labour market also provides an opportunity to explore the possibility that local job-information networks help to explain the unequal distribution of unemployment across Australian neighbourhoods documented by Gregory and Hunter (1995).

Finally, this paper estimates the factors which affect the search methods chosen by Australian teenagers. Our sample includes teenagers who were looking for work, but were not enrolled in full-time education, and who were respondents to the Australian Youth Survey (AYS) which covers the period 1989 and 1994. Data on individuals from the AYS allow us to control for individual characteristics, past education experience, family background and the characteristics of the neighbourhood the teenager is living in.

We find that the receipt of unemployment benefits is the single most important variable for predicting the method reported as the main search method. Benefit recipients are almost 20 percentage points more likely to report the CES as their main job-search method and are significantly less likely to report either newspapers or direct search methods.^[1] There is some evidence that individuals who have a longer duration of unemployment are more likely to report newspapers as their main job-search method. This is consistent with the possibility that unemployed teenagers have tried search methods that have proved more successful for teenagers who found employment, have not obtained a job offer, and consequently have focused on alternative search methods.

Respondents whose parents are better educated and/or have higher status occupations are more likely to search using friends and relatives or directly contacting employers in preference to searching in the newspaper or through the CES. Respondents who left school in Year 10 or earlier and/or attended a government school are more likely to report that the CES is their main method of search.

There is also evidence that higher neighbourhood unemployment rates decrease the probability of using direct search methods and increase the probability of using the CES as the main method of search. This relationship can be explained if the effectiveness of direct search methods depends on the quality of local job-information networks, measured as the proportion of the neighbourhood who are employed. The presence of local job-information networks may also help explain the increasing concentration of unemployment documented by Gregory and Hunter (1995). If a neighbourhood experiences a negative employment shock, e.g. the closure of a local employer, the initial increase in unemployment may be amplified by a fall in the search effectiveness of the unemployed in the local area, due to the decrease in the quality of local job-information networks.

The rest of the paper is organised as follows. Section 2 provides some summary information about the search methods used in the youth labour market in Australia and reviews the international evidence on the effectiveness of different job-search methods. After discussing why friends and relatives would be a more successful method than other available search methods, this section briefly reviews the current empirical evidence for which factors affect the way individuals choose to search. Finally, a formal model to explain an individual's choice of job-search method is discussed. Details of this model are presented in Appendix A.

Section 3 provides a detailed description of the data. Section 4 lays out the econometric model explaining the job-search method choice of an unemployed individual and presents the estimation results. Section 5 concludes by summarising the results and examining their contribution to our understanding of the youth labour market in Australia.

Footnote

The Commonwealth Employment Service (CES) was the main employment service available to the unemployed through the sample period being considered here, and was administered by the Federal Government. In 1998, it was replaced by Centrelink and a competitive employment services market known as the Jobs Network. [1]