Why Everyone Suffers When Job Seekers Give Up

When workers drop out of the labor force, it affects more than the workers themselves.

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Discouraged workers can't help the economy move toward recovery, as they generally can't contribute to the aggregate demand without generating income, paying much in taxes, or consuming much, Autor says. Over the longer term, some discouraged workers will never return to the labor force and may depend on financial support from family members, or public programs such as federal disability benefits or Medicaid. "In addition to the losses these individuals suffer as a result of not remaining active in the labor market, their withdrawal is also an expensive proposition for the public," Autor says. "Prime age adults who exit the labor force permanently will generally receive considerably more in public benefits and transfer income than they will pay in taxes. Thus, in net, their withdrawal increases the dependency ratio, that is the ratio of non-workers to workers."

The discouraged workers of this recession may, by and large, be short-termers, jumping back into the job market as soon as hiring really improves. Others may make new plans. Diane Lim Rogers, chief economist at the Concord Coalition and blogger at economistmom.com, says that some of workers' discouragement right now is "probably just short term and will recover, but some workers have probably had enough of this downturn and their bad labor market experiences that they will start pursuing other longer-term plans," such as going back to school.

Retraining programs will likely be key to getting discouraged workers back into the workforce. "What's worrying is you have this sea of unemployed people who seem to not have the right skill sets for where jobs may be being created in this economy," says Joshua Shapiro, chief U.S. economist at MFR, an economic consulting firm in New York.