What Is a Discouraged Worker?
A discouraged worker is a person who is eligible for employment and can work, but who is currently unemployed and has not attempted to find employment in the last four weeks. Discouraged workers usually have given up on searching for a job because they found no suitable employment options or failed to secure a job when they applied.
- Discouraged workers are workers who have stopped looking for work because they found no suitable employment options or failed to be shortlisted when applying for a job.
- The causes for worker discouragement are complex and varied.
- Discouraged workers are not included in the headline unemployment number. Instead, they are included in the U-4, U-5, and U-6 unemployment measures.
Understanding Discouraged Workers
The U.S. Department of Labor’s Bureau of Labor Statistics (BLS) defines discouraged workers as “those persons 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 4 weeks preceding the survey.” The BLS adds that “discouraged workers were not currently looking for work specifically because they believed no jobs were available for them or there were none for which they would qualify.”
As discouraged workers are no longer looking for employment, they are not counted as active in the labor force. This means that the headline unemployment rate, which is based solely on the active labor force number, does not take into account the number of discouraged workers in the country.
Causes for Worker Discouragement
The causes for worker discouragement are complex and varied. In some cases, workers fall out of the workforce because they are not equipped to deal with technological change in their workplace. An example of this occurred during the Great Recession, when the manufacturing sector shed senior staff unable to work on the new computer numeric control (CNC) machines, used for cutting wood and other hard materials, according to a report by The Washington Post.
Nick Eberstadt of the American Enterprise Institute (AEI) has blamed the “flight from work” on a lack of supply of skilled, able, and willing workers and an increasing reliance on disability insurance. His theory is backed by Alan Krueger’s 2016 research, which found that self-reported pain and disability insurance was higher among discouraged workers.
Other possible reasons for discouraged workers include restrictions that limit employment options for formerly incarcerated individuals and jobs that are perceived as being inaccessible to a specific gender.
The number of discouraged workers in the U.S. in December 2020, according to the Bureau of Labor Statistics (BLS).
BLS Accounting for Discouraged Workers
To better analyze unemployment in the U.S., the BLS created alternative measures for the underutilization of labor. U-4, U-5, and U-6 capture discouraged workers.
- U-4 equals the total number of unemployed people, plus discouraged workers.
- U-5 equals the total number of unemployed people, discouraged workers, and other marginally attached workers.
- U-6 equals the total number of unemployed people, all marginally attached workers, plus people employed part-time who are seeking full-time employment.
At the close of 2019, the U-4 rate, seasonally adjusted, was 3.7%, just a shade higher than the headline, or official, unemployment rate of 3.5%. Fast forward a year to December 2020, and the U-4 rate, seasonally adjusted, was 7.1%, compared with the official rate of 6.7%.
Figures from 2020 were significantly impacted by that year’s economic crisis. Still, the current U-4 number is not as bad as the 2009 annual average, which stood at 9.7% in the throes of the Great Recession.
Helping the Discouraged
The U-4 rate helps to quantify how many discouraged workers exist and keep tabs on the change in their numbers. Further analysis of age groups, race, and geographic location is also made possible by U-4 measures.
Policymakers at federal, state and local levels can use these numbers to formulate plans to assist them. Such plans may consist of training programs, education subsidies, or tax credits for companies that hire long-term unemployed individuals.
View more information: https://www.investopedia.com/terms/d/discouraged_worker.asp