Unemployed and Discouraged PDF Print E-mail
Written by Polina Vlasenko   
Friday, 28 August 2009 00:00

Many have interpreted the slight drop in the national unemployment rate from 9.5 percent in June to 9.4 percent in July as yet another sign that the economy is improving. This interpretation is misleading.

The unemployment rate, as defined by the Bureau of Labor Statistics, measures the percentage of people in the civilian labor force who are without jobs, but who are currently available for work and have actively looked in the previous four weeks. A person who does not have a job, but who is not taking active steps to find one, is classified as being out of the labor force. In a prolonged recession such as this one, unemployed people are more likely to give up the job search. Because they drop out of the labor force, they are no longer considered unemployed.

 Change from June to July 2009
 Unemployment  -267,000
 Employment  -155,000
 Labor force
 -422,000

From June to July, as the table above shows, the number of unemployed people fell by 267,000. But the number of employed people also fell, by 155,000. The numbers suggest that rather than finding jobs, some of the unemployed simply stopped looking for work, which caused the total labor force to shrink.

As the July data shows, the unemployment rate alone should not be used an all-encompassing indicator of the state of the labor market. Unemployment might appear to decrease, even as deteriorating labor market situation causes some of the unemployed to stop looking for work.

The BLS is aware that the unemployment rate may underestimate the true number of people who are unable to find jobs. It collects data about discouraged workers, people who stopped looking for work because they believe there are no jobs for them. As the chart below shows, the number of discouraged workers usually increases as the unemployment rate rises. This number has been increasing sharply since August 2008.

As Unemployment Rate Rises More People Stop Looking for Work
Source: Bureau of labor Statistics, Current Population Survey. Latest data: July 2009. Discouraged workers series is not seasonally adjusted. (Click to enlarge chart.)

Discouraged workers are only a part of those marginally attached to the labor force. The BLS says that in July 2009, in addition to 796,000 discouraged workers, there were 1,486,000 people who wanted a job but did not look for one because of school or family responsibilities, health issues, or transportation problems.

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Comments (5)
Problem With Ratios
5 Monday, 31 August 2009 09:33
Philip Louer
This shows the fallacy of using ratios (percentages) to provide useful information for making judgments and predictions. Ratios are only comparable if the denominator remains constant, and, unless the absolute numbers are presented, one cannot know if the ratios are useful. This article is a good demonstrator of this problem and the danger of misleading the public.
real unemployment rate
4 Friday, 28 August 2009 13:48
smaller_govt
Check out:

http://www.breitbart.com/article.php?id=CNG.4452bed82adf3124e5884678e236d7fb.361&show_article=1

excerpt:

The real US unemployment rate is 16 percent if persons who have dropped out of the labor pool and those working less than they would like are counted, a Federal Reserve official said Wednesday.

"If one considers the people who would like a job but have stopped looking -- so-called discouraged workers -- and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent, said Atlanta Fed chief Dennis Lockhart.
Unemployed and the Discouraged
3 Friday, 28 August 2009 12:40
JugHead
It would also be informative to know how the number of those still looking and those discouraged and not looking compare. Without that information it is hard to judge the severity of the situation.
Employment, Industry and Crisis in the United States: High levels that can be improved
2 Friday, 28 August 2009 12:17
EAAEDS
The USA is a great economy in spite of the current financial crisis: Employment rates, productivity and real wages have evolved better in the United States than in the European Union and other areas of the World, as it may be seen in Guisan(2006) free downloadable at: http://ideas.repec.org/a/eaa/aeinde/v6y2006i3_4.html
and in other articles. In my view the main concern should be the stagnation of industrial production per head (real Value-Added in industrial sectors per inhabitant) for the period 1999-2008, because this stagnation has made that the development of Services was only possible at the cost of Current Account Deficits. A Short note on this important question is commented in our blog on World Development: http://euroamericanassociation.blogspot.com
To increase the level of employment and foster sustainable development requires more attention to Industry and Current Account Balance.
UNEMPLOYMENT
1 Friday, 28 August 2009 11:17
CORTEZ 7
Had been in financial services, for a major lending institution, for over 21 years. Was laid off due to falling home values (Florida) that created a negative effect on appraisal values of residential real estate.
Am able to get interviews due to the strenght of my resume, but am beginning to feel that due to my age, once I meet with the interviewer, they are not interested any longer.
Have more or less stopped looking for work in my prior occupation and am willing to take almost anything to bring in some income.
Crazy times we are living in.

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