Discouraged Worker

Finding a job is usually a tough slog. It’s not about blindfolds, darts, a career map and then...sticking to it. You oftentimes have to apply all over with your best application (making each one unique and personalized, of course), then go through rounds of interviews, sucking up to the company without taking too much of a pay cut to get hired. Ouch.

When someone gives up on the job search, they’re considered a discouraged worker. How can you blame them? In economics, a discouraged worker has to be of age of legal employment (sorry parents, you can’t call your lazy teenager a “discouraged worker” quite yet) and has to be someone who is not actively looking for a job, or someone who can’t find one after being unemployed for awhile.

We all get discouraged every once and awhile. It’s not about avoiding getting discouraged, but about having the skill of getting un-discouraged. Just like we know the economy goes through boom-and-bust cycles, so does the labor market, and so do we. And occasionally...we find ourselves outside the labor force.

Okay, so...what is "outside the labor force," and how do you know if you’re in the labor force?

It might feel like you’re working hard...but that’s not the real test. Working hard at homework doesn’t get you paid...at least not right now. Taking care of your kids doesn’t get you paid; actually, it probably costs you money. Taking care of your own lawn doesn’t get you paid. So...what’s the standard?

Well, first of all, the labor force is made up of all the people in the economy who are looking to sell their labor in the open market. Seems straightforward enough. There are people who are employed, like people working in factories, offices, or all sorts of other places...then there are people who aren’t employed. Then there’s the grey area. Like...maybe some guy is working for an organization...he’s got to trudge through the snow all day, but he’s not collecting wages as far as we know.

If you get up every morning and do something that gets you paid, then you’re counted as being employed. The key part is that you’re getting paid. You’re trading your labor on the open market: the labor market.

If you spend all day sitting in the basement, drinking Mountain Dew and watching reruns of Law & Order: SVU, collecting unemployment checks, then you are officially unemployed.

So all of this is true…but it’s a bit more complicated in real life. There are actually three categories of people when it comes to the labor market.

The employed.

The unemployed.

And those “outside of the labor force.”

Pronounced OOTLF, this is the big term that confuses millions. Or…at least the 134 people who report economic data and actually…follow it. This group represents the invisible part of the labor market. People don’t talk about them all that much. Almost like they don’t want to admit that they exist.

But the outside the labor force people actually represent a sizable portion of the U.S. population…and it’s an important concept to keep in mind if you’re really going to understand key econ statistics, especially the unemployment rate, and what it actually means at any depth, because the data’s pants are on fire soooo often.

The unemployment rate is royalty in the world of economic statistics. You could say it’s the king of stats…with GDP being the queen. All other stats bow before it. Politicians love to quote the unemployment rate. A high rate means the economy stinks and everyone in Washington should get replaced…a low rate means everything is going well and the bureaucrats and politicians get to keep living off our tax dollars.

But there’s a missing piece…the outside the labor force piece. It has to do with how the word “unemployed” is defined. To be officially unemployed…that is, included in the unemployment rate…you need to be looking for a job. So if this guy is happy living off his parents, playing Fortnite all day, not bothering to look for a job…he wouldn’t qualify.

The unemployment rate isn't calculated by dividing the number of people without jobs by the total number of people in the country. Instead, the number gets divided by the number of people who want a job.

There are plenty of people who are perfectly content with not having a job. There are children and college students. There are housewives and househusbands. There are retirees. There are lottery winners. There are jet-setting heiresses. There are grifters, beach bums, drug dealers, busking street mimes...and so on.