While these people have looked for work within the past year, they are not officially classified as unemployed because they have not looked in the past four weeks. However, discouraged workers would take a job if it were offered. Discouraged workers are not those who have dropped out of the labor force for reasons classified as “other.” Those workers might have gone back to school to increase their chances of getting work. Others leave the workforce because they’ve started a family. Others can’t work because they’ve become disabled. Although they may also feel discouraged, they aren’t counted as discouraged workers.
What Discouraged Workers Mean For You
There are several reasons discouraged workers give up looking for work. Here are a few:
They might have been unemployed for so long that their knowledge, skills, and abilities have become outdated. They might not have the schooling or training needed to get the job they want. They might feel that there is a preference for younger workers in the available jobs. Some might believe they’ve been discriminated against because of their gender or race.
While discouraged workers make up a relatively small percentage of the real unemployed, keeping an eye on this figure can tell you a lot about the labor market and the economy. For example. rising numbers of discouraged workers often coincides with a stagnating economy. Because discouraged workers are not counted in the official unemployment rate (“U-3”), that report may understate the severity of an economic downturn. Conversely, when discouraged workers return to the workforce (by actively seeking work), they will appear in the U-3 unemployment figure, raising the unemployment rate, even as the economy is improving.
How Discouraged Workers Affect the Labor Force Participation Rate
Discouraged workers can reduce the labor force participation rate (LFPR) if unemployment is serious enough. At the beginning of a recession, the number of discouraged workers increases as the participation rate decreases. After looking for six months or more, many stop looking and drop out of the labor force. At that point, both the participation rate and the number of discouraged workers drop. When the economy improves, discouraged workers return to the labor force. They may have the hardest time finding a new job, so their number could increase for a while. Eventually, the participation rate should increase and then stabilize as the number of discouraged workers drops.
History of Discouraged Workers in the Labor Force Participation Rate
In the 21st century, the LFPR fell from its peak of 67.3% in April 2000 to 65.8% in 2005. It rose to 66.4% in January 2007, then fell to a new low of 62.4% in September 2015. In April 2020, the LFPR dropped to 60.2% because of the COVID-19 pandemic. The large drop was due in part to discouraged workers, as shown in this chart.
