High Unemployment & A Shrinking Workforce

One of the effects of extended unemployment benefits is lower workforce participation. Yes, I know that in addition to wrong headed I'm also uncaring, mean spirited, and vile and the Koch brothers pay me to write this blog. The Bureau of Labor Statistics calculates the unemployment by a monthly phone survey called the Current Population Survey. To be counted as unemployed the here are the official criteria:

" Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.

Workers expecting to be recalled from layoff are counted as unemployed, whether or not they have engaged in a specific jobseeking activity. In all other cases, the individual must have been engaged in at least one active job search activity in the 4 weeks preceding the interview and be available for work(except for temporary illness)."

The term "discouraged worker" is frequently heard to describe those respondents who have not actively sought work in the last four weeks. As they leave the workforce the unemployment rate declines since "rate" means percent of the workforce that is looking for work. Thus in November the unemployment rate dropped from 9% to 8.6% but 487,000 are no longer looking for work and not counted in the workforce. We usually get the discouraged worker number on televisions from dire looking, hand wringing, emotional reporters who look as if they just seen their mothers drawn and quartered. How discouraged are the discouraged workers? Read this excerpt from Marietta Times:

My experience: Before 2009 if our company advertised for an open position, on average we would get 20 to 30 applications, interview six to eight of the applicants, and hire one or two, based on the quality and potential of the candidates. This process has been deteriorating dramatically since 2009 and now at the end of 2011 it has completely hit bottom. Of all the applications that we have received this year, when asked why they were seeking a job with us, one out of three answered: my unemployment is running out and I have to go back to work. Earlier this year after I hired two new full-time employees, went through our company's orientation process, fitted them with our work clothing and booked them to start within a week, they both quit. One called ahead of the start date to apologize but wanted to inform us he would not be coming in because the government had just extended unemployment benefits again. The second one just did not show on his first day and when I called him he said he couldn't come in now because unemployment had been extended and he was making almost as much as we were planning to start him out with. If this is not frustrating enough to those of us that provide jobs and pay taxes let me give you my last two attempts this year. Both times we advertised in various media at great expense. The first time only seven applicants came in, I set up personal interviews with two for potential hiring, neither of them even showed up. The second time with six applicants, I set up interviews with four, one called in to cancel the interview, one did not even show up, two actually came in, though one was late. To summarize (in case you missed the math) of the last six people that I called for interviews for potential full-time employment only two came with one being late. It is more than frustrating, it's perverted.

True, you can't build an economic theory on one letter to the editor in a small Ohio city but there have been studies that suggest that this is no aberration. Don't be too hard on the people who would rather draw unemployment than work. They made rational economic decisions. Who among us would work for little or nothing? By the same token don't feel antipathy to those who vote not to extend unemployment benefits there are making a rational economic decision too. If congress fails to further extend unemployment's benefit you can bet that vacant jobs would get filled and as those who gave up looking for work reenter the workforce the unemployment rate will go up-not down. More will be working but more will also looking for work and thus classified as unemployed.