Are Discouraged Workers Done Leaving the Labor Force?

One of the big stories in the labor market over the past two months has been to what extent dips in the unemployment rate over the last few months can be credited to people simply exiting the labor market. That’s because as people stop looking for work, they stop getting counted on the rolls of the unemployed, having left the labor force. This means that society loses out on the productive abilities of people who give up on the job search because they can’t find an acceptable position. Thus, a fall in the unemployment rate — theoretically good news — can actually disguise a negative trend..

This issue was magnified in 2010, which saw the level of discouraged workers – the number of Americans stopping the job search because they believe work isn’t available – reach record highs. The blue line indicates the corresponding fall in labor force participation.

Interestingly, though, January saw a huge drop-off in the level of discouraged workers, about a 25 percent drop, and it held largely steady in February. This, like the leveling off of unemployment applications and slow, steady job growth, is a sign that the crisis period for the labor market might be coming to a close. A fall in the number of discouraged workers leaving the job market means prospects for the unemployed, if still not as good as we’d like them to be, are looking a little rosier. Lets hope it sticks.