Structural Unemployment, Discouraged Workers, and the Labor Force

According to the U. S. Bureau of Labor Statistics, the number of adults considered "not in the labor force"-those people over age 18 who do not have jobs and are not looking for employment--has grown by about 4.4 million since June of 2000. At least part of this growth is from what economists refer to as "discouraged workers." Discouraged workers no longer seek jobs because they have become so disillusioned about the prospects of finding a job that they have left the labor force entirely. Since these workers are no longer counted in the labor force, they are not a part of the unemployment rate as calculated by the Bureau of Labor Statistics.

Politically, it will be much harder for Mr. Bush to convince American voters that the economy is moving in the right direction if millions of people have become discouraged about even looking for work. The economics of the issue suggests that the economy has a huge pool of workers and plenty of room for expansion without requiring higher wages. This means the inflationary pressure of an expansion would decrease, but the mismatch still may slow down any economic recovery, since discouraged workers do not pay taxes or purchase many high-ticket items.

If workers are displaced by a growing mismatch between workers skills and the requirements of the workplace, an economic recovery could be characterized by increased inflationary pressures. Economists label this fundamental economic issue of mismatched jobs and skills with the phrase "structural unemployment".

If the economy is experiencing a greater mismatch between worker skills and job requirements, an over-supply of low-skilled workers may need retraining to meet the requirements of higher paying jobs that already exist but are going unfilled. Fed Chairman Greenspan has been a prominent spokesperson for retraining, so the Bush administration has spoken to this issue, but White House efforts have been long on rhetoric and short on funding.

If Greenspan and others are correct about the need for training assistance to match skills with jobs, the income disparities between low-skilled and highly-skilled workers could widen and the reserve of workers "not in the labor force" will remain large and even growing.

(Updated September, 2004)