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- iHaveNet.com: Economy
by Liz Wolgemuth
Among the surprises in last month's job report was the downward slide in the unemployment rate from 9.7 percent to 9.5 percent. Most of the time, high unemployment rates are bad and low unemployment rates are better. But when the percentage of out-of-work Americans dipped in June, it was driven largely by a 652,000 drop in the labor force.
Some job seekers might see this, on its face, as a good thing -- fewer labor force participants means less competition for jobs. The truth is much less helpful. When able workers drop out of the job market, their households make do with less income, and their long-term financial health may be threatened, as savings are depleted. The aggregate economy suffers, too, as it chugs its way out of recession -- it loses their contributions as workers and their buying power as consumers.
The number of discouraged workers has skyrocketed over the past year, as job-cutting has slowed but hiring has remained sluggish. "Discouraged" is a
The growth in discouraged workers is clearly correlated with the high numbers of long-term unemployed -- as people who have spent a year or two looking for work unsuccessfully begin to lose the will to keep searching. With five job seekers for every job opening, and some jobs not likely ever returning, the search has been incredibly difficult for many. This is worrying, says Sung Won Sohn, an economist at
Many workers who were encouraged to keep searching for jobs through the requirements of unemployment benefits have lost that incentive as Congress has allowed federal benefits to expire. "An important argument for extending [unemployment] benefits is that UI keeps people looking for work so as to head off their potentially permanent withdrawal from the labor force," says David Autor, a labor economist at
The negative effects of workers dropping out extend beyond the workers themselves. "You have fewer family members working, which means families have less income," says Heather Boushey, senior economist at the
The broader economy and society suffers when workers become discouraged. Younger workers, blacks, and Hispanics tend to be overrepresented in the discouraged-worker category, according to the
Discouraged workers can't help the economy move toward recovery, as they generally can't contribute to the aggregate demand without generating income, paying much in taxes, or consuming much, Autor says. Over the longer term, some discouraged workers will never return to the labor force and may depend on financial support from family members, or public programs such as federal disability benefits or
The discouraged workers of this recession may, by and large, be short-termers, jumping back into the job market as soon as hiring really improves. Others may make new plans. Diane Lim Rogers, chief economist at the
Retraining programs will likely be key to getting discouraged workers back into the workforce. "What's worrying is you have this sea of unemployed people who seem to not have the right skill sets for where jobs may be being created in this economy," says Joshua Shapiro, chief U.S. economist at MFR, an economic consulting firm in New York.
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Why Everyone Suffers When Job Seekers Give Up