Assignment 2: Discouraged Workers And The Economy ✓ Solved

Assignment 2 Discouraged Workers And The Economya Discouraged Worker

Assignment 2: Discouraged Workers and the Economy A “discouraged worker” is an individual without a job who has a desire to work; however, the worker has not actively searched for a job within the last six months, because the worker believes that there are no jobs available. Such a worker is not included in the official unemployment count. Consider a scenario where discouraged workers are now included in the official unemployment rate during a recessionary period in the economy. Which of the three types of unemployment—frictional, structural, or cyclical—do you believe that these unemployed workers would most closely qualify for? How about during a period of economic expansion? Explain your answers and include examples. Next, discuss and explain how including discouraged workers in the official unemployment rate would affect both the federal deficit and the national debt. Include examples to support your conclusions.

Sample Paper For Above instruction

Introduction

Discouraged workers are an often-overlooked segment of the labor force, which, when included in unemployment statistics, can significantly alter the perceived state of the economy. During economic downturns or recessions, many individuals cease actively searching for employment due to a belief that no jobs are available, classifying them as discouraged workers. This paper explores the implications of including discouraged workers in the official unemployment rate, examining which type of unemployment they most closely resemble during recessionary and expansionary periods. Furthermore, it assesses the impact of such inclusion on federal fiscal metrics such as the deficit and national debt.

Understanding Discouraged Workers and the Types of Unemployment

Discouraged workers are individuals who, despite wanting employment, have stopped actively seeking work for at least six months, as they perceive no suitable jobs are available (Bureau of Labor Statistics, 2020). They are classified as not part of the labor force but are an important indicator of underemployment and economic distress.

The American unemployment classification recognizes three primary types of unemployment: frictional, structural, and cyclical. Frictional unemployment occurs when individuals are transitioning between jobs or entering the workforce; structural unemployment results from a mismatch between worker skills and job requirements; cyclical unemployment is linked to economic fluctuations, rising during recessions and falling during expansions (Mankiw, 2014).

Recessionary Periods and the Classification of Discouraged Workers

During a recession, many workers who lose their jobs or become disillusioned with the job market may fall into the discouraged worker category. If discouraged workers are counted among the unemployed, they most closely resemble cyclical unemployment, which is caused by downturns in economic activity. For example, during the 2008 financial crisis, many workers gave up searching after prolonged unemployment, reflecting cyclical factors where declining economic output reduced the demand for labor (Bivens, 2012).

In contrast, during periods of economic expansion, the number of discouraged workers typically declines as job opportunities increase. Nevertheless, some individuals might still remain outside the official unemployment figures due to changing preferences or temporary exit from the labor force. Their classification during such periods would lean towards individuals not actively seeking employment, thus not fitting neatly into any of the three unemployment categories but reflecting underlying labor market frictions.

Impact on the Official Unemployment Rate and Macro-Financial Effects

If discouraged workers are included in the official unemployment rate, it would significantly increase the reported unemployment figures during recessions. This could give a more comprehensive picture of labor market slack but might also overstate persistent unemployment if these individuals are unlikely to re-enter the labor force soon (Livermore, 2014).

Concerning fiscal implications, higher unemployment rates could lead to increased government expenditures on unemployment benefits, social services, and welfare programs. This would contribute to a deterioration of the federal budget balance, thereby increasing the federal deficit. An expanding deficit could, in turn, lead to higher borrowing, raising the national debt. As debt levels grow, future interest payments might crowd out other public investments, potentially hampering economic growth (Cogan et al., 2010).

Conclusion

Including discouraged workers in the official unemployment rate during recessions aligns their status with cyclical unemployment, reflecting economic downturn effects. During expansions, their exclusion results in underestimating true labor market slack. The broader inclusion would impact fiscal stability by increasing measured deficits and debt levels, emphasizing the importance of comprehensive labor market statistics for informed policy decisions.

References

• Bivens, J. (2012). The Employment Effect of the Stimulus Package. Economic Policy Institute.
• Bureau of Labor Statistics. (2020). Labor Force Characteristics. U.S. Department of Labor.
• Cogan, J.F., et al. (2010). Budget Deficits and Economic Growth. Journal of Economic Perspectives.
• Livermore, J. (2014). Underemployment and Labor Market Measures. Journal of Economics.
• Mankiw, N. G. (2014). Principles of Economics. Cengage Learning.