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Yolanda K. Kodrzycki
Assistant Vice President and Econo- mist, Federal Reserve Bank of Boston. Ann Ferris and Matthew LaPenta pro- vided valuable research assistance.
Discouraged and Other
Marginally Attached
Workers: Evidence on
Their Role in the
Labor Market
T
he combination of very low unemployment rates and somewhat limited wage and salary pressures has called into question our ability to measure labor market tightness. One issue is the extent to which labor availability is understated, given the existence of people who are not actively looking for work but express interest in working. This note examines the evidence on discouraged and other marginally at- tached workers and concludes the following:
- The number of discouraged and other marginally attached workers is extremely low. Although historical comparisons are somewhat imprecise given definitional changes in 1994, the inclusion of mar- ginally attached workers in an expanded measure of unemployment is unlikely to change the conclusion that the current jobless rate is the lowest in three decades.
- Marginally attached workers are more concentrated than the unem- ployed in demographic groups whose employment–population ra- tios are low. Thus, as a group, they are less likely to become employed or remain employed.
- The sharp reduction in the number of marginally attached workers during the past several years has been due in large measure to the success of unemployed workers in finding jobs. Favorable economic conditions serve to limit the number who drop out of the officially measured work force. 1. How does current unemployment compare with historical data if we expand the definition to include discouraged workers and others who are marginally attached to the labor force? The April 2000 unemployment rate of 3.9 percent was the lowest since January 1970 and the May reading of 4.1 percent was barely higher. Yet, in addition to the 5.8 million unemployed, 1.1 million more people
indicate that they want a job and have searched for one sometime in the past year (but not the past four weeks). This latter group is termed “marginally at- tached” to the labor force and is divided into two categories. There are 282,000 “discouraged workers” whose reasons for not currently looking included “no work available, could not find work, lacks schooling or training, employer thinks too young or old, or other types of discrimination.” The 834,000 people with “other reasons” for not seeking work in the prior four
The unemployment rate rises by 0.2 percent if discouraged workers are included and by 0.7 percent if all marginally attached workers are included.
weeks gave reasons such as child care and transpor- tation problems. The unemployment rate rises by 0. percent if discouraged workers are included and by 0.8 percent if all marginally attached workers (dis- couraged plus other reasons) are included.^1 The marginally attached worker concepts were developed as part of a redesign of the Current Popu- lation Survey in 1994. However, an alternative mea- sure of discouraged workers was issued quarterly as far back as 1967. The old definition referred to people who want a job but “think they cannot get one”—for reasons that are essentially the same as those used currently to categorize discouraged workers. The dif- ference in the old definition was that it was not limited to people who had searched for work in the past year. As a result of the change in concept, the number of discour- aged workers in early 1994 was only about one-half as
large as the number of people who wanted a job but thought they could not get one in late 1993.^2 Figure 1 shows the official unemployment rate and an estimate of the expanded unemployment rate including discouraged workers (U-4) on a quarterly basis starting in 1967.^3 Prior to 1994, the number of workers who wanted a job but thought they could not get one was multiplied by 0.474 to approximate the current discouraged worker concept. The number of discouraged workers in the first quarter of 2000 was 251,000, the lowest ever recorded. According to the approximation method used, the previous low was 254,000 (535,000 3 .474) in the second quarter of 1969. Moreover, because the labor force is now almost twice as large as in 1967, the inclusion of discouraged workers now would raise the measured unemploy- ment rate much less than it would have three decades ago. The expanded unemployment rate including all marginally attached (U-5) is also included in the upper panel of Figure 1, starting in 1994. Unfortunately, no data exist prior to 1994 that are at all similar to the current definition of marginally attached for other reasons. However, the most recent quarterly value for U-5, 4.9 percent, is lower than the official unemploy- ment rate at any time between 1973 and 1994 and lower than the estimated U-4 at any time between the first quarter of 1970 and 1994.
2. Are the marginally attached as “employable” as the unemployed? In adding the number of marginally attached to the number of unemployed and interpreting the total as a measure of labor availability, an implicit assump- tion is that the two groups are similar. However, the marginally attached may not be as employable as the unemployed.^4 For example, suppose marginally at-
(^1) The U.S. Bureau of Labor Statistics publishes six alternative measures of unemployment. U-4 is defined as total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers. U-5 is total unemployed, plus discour- aged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers. The most comprehensive measure, not discussed in this note, is U-6, which also includes people who were employed part-time “for economic reasons” (that is, because of a perceived lack of full-time work). U-6 was 7.1 percent in May 2000. The alternative measures are not seasonally adjusted.
(^2) There were 540,600 discouraged workers in 1994 Q1, equal to 0.814 percent of the total number of people not in the labor force force. In 1993 Q4, there were 1.126 million people who thought they could not get a job, equal to 1.716 percent of the number not in the labor force. Thus, the ratio of the number of discouraged workers in 1994 Q1 to the number who thought they could not find work in 1993 Q4 is 0.480. Normalized by the number of people not in the labor force, the ratio is 0.474. (^3) To facilitate comparisons with the seasonally adjusted unem- ployment rate, the U-4 and U-5 measures shown in Figure 1 are based on seasonally adjusted unemployment and labor force data. Therefore, they are slightly different from the published measures, which are based entirely on unadjusted data. (^4) More fundamentally, the standard unemployment rate is not a comprehensive measure of labor market slack, since the compo- sition of the unemployed changes over time. As noted by Bleakley,
ployment rates that are substan- tially above the overall average. Adult women have favorable unemployment rates, but lower than average labor force partici- pation. This conclusion about the relatively limited employability of the marginally attached is borne out by examining their actual labor market experiences since 1994. Table 2 indicates the average monthly “escape rates” into employment of the unem- ployed, the discouraged, and the other marginally attached. Spe- cifically, the escape rate is de- fined as the percentage of per- sons in each category who are employed one month later. Also shown are the average propor- tions remaining (or becoming) unemployed and exiting (or re- maining out of) the labor force.^6 For the unemployed, about 28 percent indicated that they were employed one month later. For discouraged and other marginally attached work- ers, the proportion was only about 12 to 13 percent. The majority of marginally attached workers—some 60 percent—indicated that they remained out of the labor force the following month, and only about one-quarter indicated that they were actively search- ing for work.^7
3. So why has the number of marginally attached workers fallen sharply in recent years? Despite their relatively low rates of employment, the number of marginally attached workers has shrunk dramatically in recent years. The number of
(^6) The author is grateful to Hoyt Bleakley, Ann Ferris, and Jeff Fuhrer for making their matched CPS data set available, and specifically to Ann Ferris for performing the indicated calculations. (^7) Some of the apparent flows from one form of non-employ- ment to another probably are the result of the difficulties people have in recollecting their job search activity, especially those whose search is sporadic. It is remarkable that about 40 percent of marginally attached workers report one month later that they are not even marginally attached to the labor force. These reports may vary also because different household members respond to the survey in different months, and their perceptions of labor market attachment may differ.
Table 1
Labor Force Status, by Sex, Age, Race, and Educational
Attainment
Averages for March, 1994 to 1999 Unemployment Rate
Labor Force Participation Rate
Employment- Population Ratio Overall 5.7 66.4 62. Sex and Age Both Sexes, ages 16 –19 16.6 49.1 40. Men, ages 20 –54 5.5 89.8 84. Men, ages 55 and over 4.8 75.8 71. Women, ages 20 –54 4.8 38.6 37. Women, ages 55 and over 3.4 24.9 24. Race White 4.9 66.9 63. Black 10.7 63.9 56. Other 6.5 66.3 62. Educational Attainment Less than High School 13.0 43.3 37. High School 6.0 67.0 62. Some College 4.6 73.6 70. Bachelor’s Degree 2.3 81.0 79. Source: Current Population Survey using CPS Utilities.
Table 2
Percentages of the Unemployed,
Discouraged Workers, and Other
Marginally Attached Workers by Labor
Force Status One Month Later
January 1994 to February 2000
Labor Market Status One Month Latera
Current Labor Market Status
Unemployed Discouraged
Other Marginally Attached
Employed 28.2 11.8 12.
Unemployed 46.8 26.3 24.
Not in Labor Force: Discouraged or Other Marginally Attached 6.1 20.0 18. Not Marginally Attached 17.9 40.1 42. a (^) The columns do not add exactly to 100 percent because of technical issues related to sample weights. Source: Current Population Survey.
