Economist dopers: Discouraged workers, unemployment rates and the Fed

Factual Questions
1

Unemployment rates are one of the key indicators as to where the economy is headed and the Fed uses it in addition to various others to either stimulate or curtail growth. I’ve read in various sources that discouraged workers- those that have been without work for so long that they’ve given up- are not counted in the unemployment figures. So…

[ul]
[li]Does the Fed take into account the estimated figure for discouraged workers? If so, would they just tack it on or scale the discouraged workers figure one way or the other in order to lessen or increase its importance?[/li][li]How are the estimates for discouraged workers determined? Polls? Examination of unemployment benefits?[/li][li]At what point, or rather percentage, would discouraged workers have an effect on the economy without Fed intervention? Would things naturally slow down or speed up once a certain level is reached?[/li][/ul]

2

When the unemployment figures came out last week with the disappointing 1,000 jobs net gain for December, NBC News also posted two other figures. The first was the Administration had predicted an additional 900,000 jobs by this time, while the actual figure was around 230,000 new jobs. What NBC did not address was ten times that number of old jobs lost during the Administration.

So we have three numbers:

  1. About 900,000 new jobs predicted by the Administration by this time.
  2. Approximately 230,000 new jobs actually created by this time.
  3. Approximately 2.5 million old jobs actually lost by this time.

It appears the predicted +900,000 jobs is in reality a 2.3 million job loss, for a 3.2 million jobs disparity.

Lies, damned lies and statistics.

3

Those 900,000 new jobs were going to be a result of the tax cuts, right?

That’s why tax cuts were so beneficial to Americans, IIR. Someone who was paying more attention, pls correct or verify.

4

Does the Fed take into account the estimated figure for discouraged workers? If so, would they just tack it on or scale the discouraged workers figure one way or the other in order to lessen or increase its importance?
Yes, Alan Greenspan and the Fed take into account many types of data, including, I’m sure, discouraged workers.

How are the estimates for discouraged workers determined? Polls? Examination of unemployment benefits?

I believe the discouraged workers data comes from the Household Survey. There are two main sources of data on employment - the Establishment Survey and the Household Survey. The Establishment Survey is a survey of employers, and it asks how man people are working. The number of jobs gained or lost is based on this number. The Household survey is a survey of households, and one of the questions is something like “Are you a discouraged worker?” (Incidentally, FWIW, the Household survey can also be used to estimate the number of jobs, and it shows less job loss in the last few years than the Establishment survey)

I’m not sure about your thrid question. Perhaps if you re-phrased …

5

If the Fed didn’t issue a rate change yet unemployment was rising/rose, would the various industries, investors, etc. take the figures into account and cause the economy to grow/shrink?

6

It sounds like you are trying to lump the discouraged in with the unemployed. I know what you are trying to ask, and this doesn’t answer it, but one must take into consideration that many of these discouraged workers decide to do other things like go back to school, retire early, or decide to become stay at home soccer moms and/or dads. While they may join the ranks of the unemployed at some point in the future, the discouraged and the unemployed are not the same thing.