Peter Pankovic provides an example of a discouraged worker. Peter once had a job, a well-paying job at the HyFy Electronics Company (a leading record-player manufacturer). But when HyFy Electronics Company went bankrupt, Peter lost his job and has not been able to find another. During the first six months of unemployment, Peter actively searched for other jobs. But none were found. So he simply gave up. Over the past year, Peter has resigned himself to sleeping on his sister's sofa and eating left over pizza crust. He would like to work. And someday he will once again seek employment. But for now, he does nothing.

Discouraged workers are excluded from the estimation of the "official" unemployment rate. Because discourage workers are NOT actively seeking employment, the Bureau of Labor Statistics relegates them to the not in the labor force category, meaning they are not officially considered to be unemployed persons nor in the civilian labor force. Excluding discouraged workers means the official unemployment rate tends to understate the severity of unemployed labor resources in the economy. However, the BLS does provide an alternative measure of unemployment (officially labeled U4) that includes discouraged workers.

Including discouraged workers in the unemployment rate adds up to one-half a percentage point (such as from 5.0 percent to 5.5 percent). However, the number of discouraged workers, and their impact on the unemployment rate, changes over the course of the business cycle.

• During business-cycle expansions, when the economy is growing, jobs are aplenty, and finding employment is relatively easy, fewer workers become discouraged. As such, their inclusion in the unemployment rate adds only one to two-tenths of a percentage point (such as from 4.5 percent to 4.6 percent).


• During business-cycle contractions, when the economy is shrinking, jobs are few and far between, and finding employment is relatively hard, more workers are prone to become discouraged. As such, their inclusion in the unemployment rate adds a half of a percentage point or more (such as from 7.0 percent to 7.5 percent).