Tuesday, April 9, 2013

The Truth about Discouraged Workers and the Declining U.S. Unemployment Rate

Recently, many individuals in quoted in the mainstream media have attributed the nation’s falling unemployment rate to an increase in discouraged workers. Discouraged workers are those who have left the labor force because they believe they would not be able to find work if they did try to find a job.

To be counted as “unemployed” and therefore part of the labor force, an individual must have actively looked for work sometime during the prior four weeks. Honestly, the standard for “actively” seeking employment is fairly low. Asking your brother-in-law if he knows of any available jobs would count.

The Bureau of Labor Statistics has specific standards for including individuals in the “discouraged” category. Discouraged workers would like a job, but have made no active work search in the preceding four weeks. They think that no work is available, they wouldn’t be able to find a job, employers think they are too young or too old, etc. So, they’ve stopped looking for work.

In the current economy, has an increase in discouraged workers contributed to the decline in the U.S. unemployment rate? It is an interesting theory, but the data say, “no!”

Because, yes, the Bureau of Labor Statistics actually estimates discouraged workers based on responses to the Current Population Survey. That’s the survey that brings us the unemployment rate. The following visualization shows discouraged worker counts for the United States. Data are not seasonally adjusted so there’s a wide variability in in the month-to-month numbers. However, the data make it clear that the number of discouraged workers actually declined during most of the past two years. Throwing in a 12-month moving average illuminates that fact even more clearly.

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