Sept 18, 2013 Balance of Payments Trends
Sept 8, 2013 August  Employment Situation
Aug 8, 2013 Why the FED is waffling on raising the FED Funds Target Rate
July 4, 2013 Cacophony of Monetary Policy
May 20, 2013 Clawing Back to 2007 Employment Levels
May 15, 2013 Getting the Income Distribution Right the First Time
Apr 25, 2013 U.S. Competitive Rebound? U.S. Emerging Nation?
Apr 9, 2013 Gaps: Jobs,  Growth, & Fiscal
Apr 5, 2013 Disastrous Jobs Report for March (March madness)
Mar 20, 2013 Federal Reserve Rolls Along
Mar 15, 2013 Feb 2013 Labor Rpt
Feb 12, 2013 Income Distribution-Separating Light from Heat
Dec 31, 2012 Fiscal Cliff --- Increased Spending
Dec 24, 2012 Fiscal Cliff---Rising Revenues with current tax cuts?
Dec 13, 2012 November Jobs Report
Nov 28, 2012 Regulation and the Financial System
Nov 17, 2012 Employment Escarpment - Moving the Jobs Needle
Oct 31, 2012 Update on Shale Gas and Tight Oil
Oct 11, 2012 Restructuring of an Industry: US Light Vehicles
Sep 4, 2012 Resuscitating the Moribund US Economy
August 4, 2012 Unemployment Rises Again
July 21, 2012 Misguided Fiscal Policy: Is it a case of fool’s gold, or the Consequences of Economic Ignorance?
July 6, 2012 Let Freedom  Ring!!! The Shale Gale
June 26 Productivity Macro
June 11, 2012 Painted into Corner
June 4, 2012 Encouraged Worker Effect
May 28, 2012 European Honeymoon Over
May 14, 2012 Back to Basics
May 4, 2012 Labor Force Participation Rate Shrinking
Apr 26, 2012 Income Distribution
Apr 15, 2012 Energy Independence
Apr 6, 2012 Jobs Jobs Jobs
2012 Articles March and Earlier
2011 & 2010 Articles
About us
Links of Interest
Straw Poll
Definitions & Miscellaneous

2012 Volume Issue 15

Economic Newsletter for the New Millennium

June 4, 2012

Donald R. Byrne, Ph.D.

Associate Editor
Edward T. Derbin, MA, MBA

For a downloadable version, click here

May 2012 Employment Report.pdf

 ...a bit more compressed version of same


May 2012 Employment Report Compressed.pdf

The May 2012 Employment Report: Encouraged Worker Effect?  Well that’s part of it…

The Discouraged and Encouraged Worker Effect

Down the Rabbit Hole (and Through the Looking-glass): Where Employment Rises and Unemployment also Rises???

Even though a person is in the Civilian Noninstitutional Population, if they are not working and are not seeking employment, they are not considered to be part of the labor force.  As this phenomenon occurs and widens, we encounter what is called the Discouraged Worker Effect, where the Labor Force Participation Rate (the Labor Force as a percent of the Civilian Noninstitutional Population) decreases. 

If they begin to look for work and are surveyed, they move back into the Labor Force and if not immediately employed, they are counted as Unemployed.  This phenomenon is usually referred to as the Encouraged Worker Effect.  This necessarily causes the labor force participation rate to increase.  Typically, the Discouraged Worker Effect occurs at the beginning of an economic downturn and causes an understatement of the severity of the downturn and is replaced by an Encouraged Worker Effect with an economic upturn, thus understating the strength of the upturn.  The longer the economy bumps along the bottom as it is doing now, at best; these relationships just described become less reliable.

Latest Developments - May 2012 

The May Employment Report from the Bureau of Labor Statistics showed some positive signs as the Encouraged Worker Effect kicked in, meaning more workers moved into the Labor Force seeking employment; the downside was that there weren’t enough jobs created to keep the unemployment rate from rising.  

642,000 people were added to the Labor Force, while [only] 422,000 of those folks found jobs.  The difference between the growth in the Labor Force and the growth in the Employed was 220,000 which added to the Unemployed and drove up the official U-3 unemployment rate from 8.1% in April to 8.2% in May.  On a further note, the U-6 unemployment rate, which accounts for more discouraged and other marginally attached workers, rose from 14.5% to 14.8%. 


US Department of Labor, Bureau of Labor Statistics



1-May 2012 Labor Force grew by 642000 with renewed hope for new jobs.jpg

2-Employed grew by 422000 a good sign, but not enough to provide jobs for all of those seeking jobs from Labor Force.jpg



3-Whereas Unemployed fell in recent months in May 2012 Encouraged Workers drove the Unemployment rolls higher and moved the Unemployment Rate needle.jpg


4-A rising unemployment is not uncommon when the Encouraged Worker Effect kicks in more job seekers than jobs can drive up Unemployment Rate.jpg


5-The U-6 Unemployment also grew as more sidelined Americans began looking for work.jpg

In spite of the possibility that there appears to be movement toward more job seekers, as evidenced by the rise in the Labor Force and the Labor Force Participation Rate (not necessarily successful job finders) in the most recent employment report, the question is will those folks enticed back into the labor force be rewarded with jobs in the coming months, or will they move back to the sidelines as those in the Civilian Noninstitutional Population not in the Labor Force?  It’s seems that while people have taken heart, it won’t take much to move them back to the sidelines and out of the labor force yet again. 




6-The Civilian Labor Force expanded for the first time since February.jpg


7-The Labor Force Participation Rate rises reflecting more sidelined workers jumping back in to look for employment.jpg

Turning to economic growth, the change in Real Gross Domestic Product showed a significant fall-off moving from 3.0% growth in the 4th quarter 2011 to 1.9% in the 1st quarter 2012.  Considering the global instability, i.e., Europe, coupled with a raft of problems including anemic growth on the GDP front, the still-cratered housing market and the looming sunsetting of the so-called Bush Tax cuts, it’s very difficult to remain positive about the prospects for the labor markets.       





8-The GDP has continued to remain weak since 2008.jpg

9-Weak First quarter GDP does not bode well for labor markets-it is not feasible to hire employees when growth is deteriorating.jpg