Question

Presently, the 'official' headline unemployment rate published by the Bureau of Labor Statistics (BLS) does not recognize "discouraged workers" as part of the Labor Force.  Would capturing "discouraged workers" provide for a more accurate measure of the nation's unemployment picture? Explain.  What impact does the labor force participation rate have on the unemployment rate?

Answer 1

Answer:

According to BLS, discouraged workers are those workers who have looked for work sometime in last 12 months but has not searched for work in 4 weeks before the survey to asses unemployment has been undertaken.

Due to this, they are not counted as either unemployed or part of labor force.

Thus, BLS does not take discouraged workers as part of labor force and due to this they do not become part of unemployment statistics.

However, it should be noted that discouraged workers are, indeed, unemployed.

They are termed out of labor force because they have not been looking for job in 4 weeks before the survey to asses unemployment.

But before that they may be looking for the work and still want to do the work.

So, discouraged workers are also unemployed workers and if they are counted as unemployed and become part of official unemployment numbers then an accurate picture of nation's unemployment can be derived.

This will help in more focussed and urgent policy intervention as part of state to correct the unmployment situation.

Labor force participation rate implies percentage of total non-institutional working age population that is in the labor force.

Labor force is sum total of unemployed persons and employed persons.

Labor force participation rate does have impact on the unemployment rate.

Increase in labor force participation rate implies that more people out of non-institutional working age population entering into the labor force. If jobs are not created on the same pace then this can result in rise in unemployment rate.

On the other hand, decrease in labor force participation rate implies that poeple are moving out of labor force. This can lead to reduction is unemployment rate.