What Is Discouraged Worker?
A discouraged worker is an individual who is willing and able to work but has ceased actively seeking employment because they believe no suitable job opportunities are available to them. This phenomenon is a key concept within labor economics, highlighting a segment of the population that is not captured by the official unemployment rate but represents an underutilization of human capital. The U.S. Bureau of Labor Statistics (BLS) defines discouraged workers as a subset of "marginally attached workers"—those who want and are available for work, and have looked for a job in the past 12 months, but have not searched in the past four weeks specifically due to job market-related reasons. 10The presence of discouraged workers can signal underlying weaknesses in the labor market that are not immediately apparent from headline unemployment figures.
History and Origin
The concept of discouraged workers gained prominence in labor economics as policymakers and researchers sought a more comprehensive understanding of labor force dynamics beyond simple measures of employment and unemployment. Prior to 1994, the U.S. Bureau of Labor Statistics (BLS) definition was criticized for being too subjective. In response to recommendations from the 1979 report of the National Commission on Employment and Unemployment Statistics (often referred to as the Levitan Commission), the BLS refined its criteria. The revised definition, implemented in 1994, added two crucial objective criteria: individuals must have looked for a job within the past year and must indicate availability to start work if a job were offered. 9These changes aimed to base the measure on clear evidence of prior job search and availability, providing a more robust and less arbitrary classification for this group of individuals who have withdrawn from the active job search.
Key Takeaways
- A discouraged worker is an individual who desires and is available for work but has stopped looking for a job due to the belief that no suitable opportunities exist.
- They are not included in the official, or "headline," unemployment rate, but are tracked as a component of broader labor underutilization measures (e.g., U-6 unemployment rate).
- The number of discouraged workers tends to rise during periods of economic downturn or recession and fall as the economy improves.
- Reasons for discouragement can include perceived lack of available jobs, belief that their skills are inadequate, or discrimination based on age or other factors.
- Understanding the population of discouraged workers provides a more complete picture of the true health and capacity of the labor force.
Interpreting the Discouraged Worker
Interpreting the number of discouraged workers offers critical insights into the underlying health of an economy beyond what the official unemployment rate alone can convey. When the number of discouraged workers increases, it suggests a softening or weakening of the labor market that isn't reflected in the headline unemployment figures. This indicates that while fewer people may be actively unemployed, a significant segment of the population has simply given up searching due to a perceived lack of opportunities or a skills gap.
Conversely, a decline in discouraged workers often signals an improving economic climate, as individuals regain confidence in their ability to find employment and re-enter the active job search. While the absolute number of discouraged workers is typically small relative to the total working-age population or even the officially unemployed, their trends are highly indicative of broader labor market sentiment and can influence consumer confidence and overall economic activity.
Hypothetical Example
Consider a small town heavily reliant on a single manufacturing plant. When the plant announces it will be closing permanently, many workers are laid off. Initially, these individuals actively search for new jobs, attending job fairs and submitting applications. They are classified as officially unemployed. However, after several months, if job opportunities in the town remain scarce and no new industries emerge, some of these laid-off workers might become disheartened.
For example, Sarah, a former plant employee, wants to work and is available, but after six months of unsuccessful searching, she stops submitting applications. She still wants a job but believes there are no openings for someone with her specific manufacturing skills gap in the area, or that employers prefer younger workers. At this point, Sarah becomes a discouraged worker. She is no longer counted as unemployed because she hasn't actively looked for work in the past four weeks, even though she desires employment. Her departure from the active job search masks the continued weakness in the town's labor market.
Practical Applications
The concept of discouraged workers is a vital tool for economists, policymakers, and businesses in understanding the true state of the labor market.
- Economic Analysis: Economists use data on discouraged workers to gauge the full extent of labor underutilization. During a recession, the number of discouraged workers often swells, providing a more comprehensive picture of economic distress than the official unemployment rate alone. 8For instance, during the 2007–09 recession, the number of discouraged workers peaked at 1.3 million.
- 7 Policy Formulation: Central banks and governments consider discouraged worker statistics when formulating monetary policy and fiscal policy. A high number of discouraged workers may signal the need for stimulus measures, job training programs, or infrastructure investments to create employment opportunities and incentivize re-entry into the labor force. The OECD, for example, emphasizes policy actions to improve job opportunities and foster lifelong learning to address labor market challenges.
- 6 Business Planning: Businesses can analyze discouraged worker trends to understand the availability of potential labor pools. A rising number might indicate a larger pool of individuals willing to work but not actively applying, suggesting areas for targeted recruitment or training initiatives. Understanding this segment helps in assessing the true capacity of the human capital available.
Limitations and Criticisms
While the concept of the discouraged worker provides a crucial nuance to labor market analysis, it is not without limitations or criticisms. One primary challenge lies in the subjective nature of classifying discouragement. Individuals self-report their reasons for not seeking work, which can introduce biases. The specific criteria for who qualifies as a discouraged worker can also vary across countries, making international comparisons complex.
F5urthermore, some critics argue that the inclusion of discouraged workers in broader measures of unemployment (like the U-6 rate in the U.S.) may still not fully capture all forms of hidden unemployment or underemployment. For example, a person might stop looking for work due to family responsibilities, rather than purely economic reasons, and would therefore not be classified as a discouraged worker, even if they would prefer to be employed. Research by the Federal Reserve Bank of St. Louis highlights that the number of discouraged workers is relatively small compared to other working-age populations and that most do not remain in this category for extended periods, with many moving into employment or active job searching within a month. Th4is transient nature suggests that while important, the discouraged worker category may represent a temporary state for many, rather than a permanent exit from the labor market.
Discouraged Worker vs. Marginally Attached Worker
The terms "discouraged worker" and "marginally attached worker" are often used interchangeably or cause confusion, but they represent distinct classifications within labor economics. A marginally attached worker is a broad category of individuals not in the labor force who currently want and are available for work, and who have looked for a job sometime in the prior 12 months. This group includes individuals who have stopped looking for a job for any reason within the past four weeks.
A discouraged worker is a specific subset of marginally attached workers. The defining characteristic of a discouraged worker is that their reason for not currently looking for work is specifically due to job market-related factors. This means they believe no jobs are available for them, they could not find work, or they lack the necessary schooling, training, or experience, or that employers consider them too young or too old. Es3sentially, all discouraged workers are marginally attached, but not all marginally attached workers are discouraged.
FAQs
Why are discouraged workers not counted in the official unemployment rate?
Discouraged workers are not counted in the official unemployment rate because the standard definition of unemployment requires individuals to be actively looking for work within the past four weeks. Since discouraged workers have ceased active searching, they are considered to be "not in the labor force."
How do economists track discouraged workers if they're not in the official unemployment rate?
Economists track discouraged workers through broader measures of labor underutilization. In the U.S., the Bureau of Labor Statistics (BLS) includes discouraged workers in its U-4, U-5, and U-6 alternative measures of unemployment, with U-6 being the broadest measure of labor market slack.
What factors contribute to someone becoming a discouraged worker?
Factors contributing to someone becoming a discouraged worker include a prolonged and unsuccessful job search, a belief that their skills are obsolete (a skills gap), perceived discrimination (e.g., age, race), or a general lack of available jobs during an economic downturn.
#2## Do discouraged workers ever re-enter the labor force?
Yes, many discouraged workers do eventually re-enter the labor force. As economic conditions improve and job opportunities become more plentiful, individuals who were previously discouraged may regain confidence and resume their job search, moving from the "not in the labor force" category back to "unemployed" or directly into "employed" status.1