The decline in the unemployment rate over the past two years has led some to highlight other aspects of the labor market. One example would be authors including the number of “discouraged workers” in their assessments of labor market conditions. However, B. Ravikumar, Federal Reserve Bank of St. Louis vice president and economist, and Lin Shao, a technical research associate, argue in an Economic Synopses essay that the statistics on discouraged workers should be interpreted with care.
Just prior to the 2007-09 recession, there were about 300,000 discouraged workers. That number swelled as the recession began, peaking at 1.3 million in December 2010. Some people have interpreted this increase to indicate weaker labor market conditions.
However, even at their peak, discouraged workers constituted less than one-tenth the number of unemployed workers. Since the start of the recession, on average, discouraged workers have been less than one-hundredth the number of either employed workers or nondiscouraged nonparticipants.
Ravikumar and Shao also point out that most discouraged workers do not remain in that category long. Only about 10 percent of discouraged workers are still in the discouraged category the following month. The remainder have moved on to be categorized as employed, unemployed or nondiscouraged nonparticipants.
Finally, about 90 percent of discouraged workers in a given month are newcomers to the category. Roughly 13 percent of the new inflows were employed the previous month, 38 percent were unemployed and the rest were nondiscouraged nonparticipants.