What Are Discouraged Workers?
Discouraged workers are individuals who are available for work and want a job but have stopped actively looking for employment because they believe no suitable work is available for them, or they lack the necessary qualifications. This group is an important consideration in labor economics as their exclusion from official unemployment rate calculations can mask the true extent of labor market slack. Unlike the officially unemployed, who have actively searched for work within the past four weeks, discouraged workers are considered "marginally attached to the labor force" by statistical agencies such as the U.S. Bureau of Labor Statistics (BLS).
History and Origin
The concept of discouraged workers gained prominence as economists and policymakers sought a more comprehensive understanding of the labor market beyond the traditional unemployment rate. The U.S. Department of Labor's Bureau of Labor Statistics (BLS) began tracking discouraged workers in 1967. Over time, the definition has been refined to ensure greater objectivity. For instance, in 1994, the BLS added criteria requiring that individuals must have looked for a job within the past year and been available to start work if an offer arose. These changes aimed to address criticisms regarding the subjectivity of earlier definitions.4 The official BLS definition specifies that discouraged workers are those not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months, but were not counted as unemployed because they had not searched for work in the four weeks preceding the survey.3
Key Takeaways
- Discouraged workers are individuals who desire employment and are available to work but have ceased active job searching due to perceived lack of opportunities or suitable qualifications.
- They are not counted in the headline unemployment rate, but rather in broader measures of labor underutilization.
- The number of discouraged workers often increases during economic recession periods, reflecting a weakening labor market.
- Understanding the population of discouraged workers provides a more complete picture of actual labor market conditions and potential human capital underutilization.
- Factors such as age, discrimination, lack of skills gap, or local job shortages can contribute to workers becoming discouraged.
Interpreting the Discouraged Worker Count
The number of discouraged workers serves as a crucial indicator for analysts assessing the overall health and capacity of an economy's labor force. A high number of discouraged workers suggests significant slack in the labor market, indicating that there is a larger pool of available talent than the official unemployment rate might suggest. This can imply that the economy is operating below its full potential for economic growth. Policymakers, including central banks and government agencies, monitor these figures to inform decisions related to monetary policy and fiscal policy. A rising count of discouraged workers can signal persistent weakness in demand for labor, even if the headline unemployment rate appears stable or declining, particularly during phases of the business cycle recovery.
Hypothetical Example
Consider a small town heavily reliant on a single manufacturing plant. Due to a sharp decline in demand for its products, the plant announces significant layoffs. Many of the laid-off workers, possessing specialized skills specific to that industry, actively search for new jobs for several months. However, with no other similar industries in the area and a lack of readily transferable skills for new opportunities, many eventually give up their active job search. While they still want to work and are available, they become discouraged. These individuals would no longer be counted as officially unemployed because they ceased actively looking for work in the past four weeks. Instead, they would join the ranks of discouraged workers, contributing to the broader measure of labor underutilization in that local labor force participation rate.
Practical Applications
Understanding discouraged workers is vital for a comprehensive analysis of economic conditions and for developing effective policy responses. In economic analysis, the presence of a substantial number of discouraged workers indicates that the economy's productive capacity, or potential gross domestic product (GDP), is not being fully utilized. This has implications for wages, inflation, and overall economic stability.
For policymakers, the count of discouraged workers helps in gauging the true extent of labor market slack, which informs decisions on stimulus measures or unemployment support programs. During and after major economic downturns, such as the 2008 financial crisis, the number of discouraged workers can surge, indicating that the recovery in the official unemployment rate may not fully reflect ongoing labor market challenges.2 Research on declining labor force participation often highlights factors contributing to individuals becoming discouraged, including educational attainment, health, and shifts in the demand for certain types of labor due to technology and global trade.1
Limitations and Criticisms
While the concept of discouraged workers provides a more nuanced view of the labor market than the official unemployment rate alone, it also has limitations and faces criticisms. One primary challenge lies in the subjective nature of determining why an individual has stopped looking for work. The definition relies on self-reported reasons, which can sometimes be influenced by a person's perceptions rather than concrete external factors.
Additionally, some economists argue that even the expanded measures of labor underutilization, which include discouraged workers, may not capture the full extent of hidden unemployment or underemployment. For example, individuals who are employed part-time but desire full-time work, or those who have taken jobs significantly below their skill level, are not classified as discouraged workers, yet they represent a form of underutilized labor. The Bureau of Labor Statistics publishes several alternative measures of unemployment (U-4, U-5, U-6) that offer a broader perspective by including marginally attached workers, a category that encompasses discouraged workers. These broader measures aim to address some of the critiques by offering more comprehensive views of labor market slack, including those experiencing long-term unemployment who might eventually become discouraged.
Discouraged Workers vs. Unemployed
The distinction between discouraged workers and the officially unemployed is crucial for understanding labor market statistics. An unemployed person is defined as someone who does not have a job, has actively looked for work in the prior four weeks, and is currently available for work. In contrast, a discouraged worker also does not have a job, wants a job, and is available for work, but has not actively searched for employment in the past four weeks due to a belief that no suitable work exists. The key differentiator is the recent job search activity. Because discouraged workers are not actively seeking employment within the specified four-week window, they are not included in the traditional calculation of the unemployment rate, but rather in a broader category of those "marginally attached to the labor force."