Assignment 2: Discouraged Workers and the Economy

Assignment 2: Discouraged Workers and the Econom

I.A discouraged worker is an individual without a job who

A discouraged
has a desire to
worker
work; however,
is an individual
the worker
without
has an
actively searched for a job within the last six months, actively
because searched
the worker
forbelieves
a job within
that there
the last
are six
no jo
m
available. Such a worker is not included in the official unemployment
available. Such
count.a worker is not included in the offici

Consider a scenario where discouraged workers are now Consider

included in
a scenario
the official
where
unemployment
discouraged rate
workers
during
ar
recessionary period in the economy. Which of the three types
recessionary
of unemploymentfrictional,
period in the economy.
structural,
Which or
of cyclic
the th
do you believe that these unemployed workers would most
do
closely
you believe
qualifythat
for?these
Howunemployed
about duringworkers
a periodw
economic expansion? Explain your answers and include examples.
economic expansion? Explain your answers and incl

Next, discuss and explain how including discouraged workers

Next, indiscuss
the official
and explain
unemployment
how including
rate would
discourag
affe
both the federal deficit and the national debt. Include examples
bothtothe
support
federalyour
deficit
conclusions.
and the national debt. Include

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The definition of a discouraged worker invites question to the assumptions the worker has and
the people who label them. On one hand s/he desires to work but for whatever reason s/he has
convinced him/herself that there is none available. Further clarification is needed, as to what is
the basis for their belief that there is no job out there? Is it the belief that there is no job out there
for his qualifications or credentials? Is it tied to the state of the economy s/he is in? Is it that there
is a true belief among them that there are really just no jobs for everyone out thereperiod?
Answers to this questions would shed some needed light to answer the first scenario. According
to the lectures, Unemployment rate is the percentage of workers in the labor force who do not
have a job from which they derive income. In the U.S., the official labor force includes people 16
years of age and older who are employed, full or part time, are actively seeking employment.
The discouraged workers then cannot be categorized in this as they are not actively seeking
employment. Hence they cannot be categorized as Unemployed, the question of which of the 3
types of unemployment they would most qualify for can only be answered by none. They could
not fit as a frictional unemployed as their condition is not brief nor transitional and with their
desire would not be voluntary specially in a recessionary economy, where the economy is
shrinking and going back to its former state and Labor participation rates are low because of
the fact that workers become too discouraged to enter the labor market due to lower real wages
and high unemployment are prevalent as expounded in Wiley (1995). They cannot fit as
structural unemployed because it is not changes in economy that created this situation (although
this is open for debate in some cases). Even though some of the characteristics they share like
they could have skills that do not match any of the available jobs. That this type of
unemployment is long term in nature (sometimes up to years w/o looking). They also dont fit

the criteria of a cyclical unemployed because again they are not the product of an economic
downturn or recession as evidenced by still having a lot of discouraged workers even during
economic expansion and they dont contribute to short run growth like many cyclically
unemployed does.
Having said all of that, if we are to consider a scenario in which they are part of the unemployed
during recession, they would mostly be classified under the cyclical unemployed as they might
have lost their jobs during the downturn of the economy, where firms are unable to keep their
number of workers due to their inability to sell enough goods and services to support their costs.
An example would be someone who has lost his job during recession like the economic crisis of
2008, where the internet boob bubble bursted and resulted to mass layoffs. Many would have
moved on but those that are discouraged would have sought employment but very
unsuccessful because they are in a position where they command a higher salary than the market
is willing to pay for. If the person sticks to his notion of getting the same level or rank as a
position and getting the same pay, he might get stuck with not finding a job and before he knows
it a significant amount of time has passed and just coming to realization that he should have
accepted and applied to those lower level of position and lower compensation, now that he is
ready to bite the bullet so to speak, the positions have been filled and new generation of
younger graduates are hungry to fill whatever position is out there. This can go on and on until
he becomes discouraged worker.
In a period of economic expansion, they might qualify as structurally unemployed. They might
have skills that do not match any of the available jobs. An Unemployment that is long term in
nature, not voluntary and that changes in the structure of the economy might be the reason for
them losing their jobs. An example would be postal workers/deliverers. Even though this jobs
still exist, one can see that technology is fast replacing how people communicate with one
another. Computers have made it very efficient to send emails instead of mails. Even greeting
cards have been replaced by online greeting cards. Social media has contributed to the way we
connect with one another as we can follow every activity our friends are doing by Facebook and
Twitter and Instagram. We can send text messages in seconds. We can call each other from
opposite sides of the globe with just an access to a computer with internet connection via Skype.
Technological advances have made drones that can deliver packages a reality Amazon is
investing huge on this and we may see on our doorsteps this technology very soon, where when
time is of the essence, we can get the physical goods delivered securely to us and quickly.
Drones area of responsibility it says will be within just minutes. We will see ordering of anything
online be delivered to us within minutes. This begs the question then for the future of the
delivery guy or the postal worker. Why would anyone opt to send through postal office and wait
for a week or at best 1 day delivery when email can be delivered within seconds. How do they
compete with that? The future then needs for them to retool or else they will be unemployed and
since they dont have any alternative skills if they have been doing this for a long time, they
might find themselves looking for delivery jobs when there are so few available and readily
snatched by part time students who are willing to work for a fraction of what this veteran
workers are accustomed to. Unsuccessful attempts might put them under the discouraged
worker category. The economy has moved on and they were not able to retool and their

unsuccessful attempts have further discouraged them together with their age for looking for a
job.
If we are to base the characteristics of a discouraged worker on the review of Klein (1990),
some patterns emerge: there are groups of displaced discouraged, elderly discouraged,
discouraged school dropouts, discouraged welfare recipients. They further characterized this
workers as those who have given up after a long and unsuccessful job search. And that they
have the same skill and educational levels as the unemployed. We can see that there are a lot of
underlying factors why they are discouraged. If we now include them in the official
unemployment rate, they will affect both the federal deficit and national debt. The federal deficit
is basically a budget that is planned and executed to be much more than the taxes collected. In
lay mans term, spending more than you earned. The government can do that because they can
loan from different monetary instruments and agencies from local to international, hence the
national debt increases. This is very good in the short term, because it creates liquidity in the
economy. When the government spends more, it creates more services and goods available for its
population. In order for us to appreciate how adding the discouraged workers into the
Unemployed will affect this, we need to remember that in a market economy, unemployment
means there is an excess supply of labor in the economy hence adding the discouraged
worker would result in higher unemployment rate. Furthermore, this would result in household
income reduction and the capacity to purchase basic goods and services and when too many of
this exist it becomes a policy problem. When it becomes a policy problem, government will
intervene and when it sees an inflated number of Unemployment, it would use its budget to
redistribute goods and services. This redistribution would take away from the other services the
government is supposed to earmark its budget and if the government deems those goods and
services necessary for the year's expenditures it will look for a way to cover those by borrowing
more hence the national debt will increase. The deficit will also balloon as there will be an extra
expense to cover with the increased unemployment. One example would be lets say the
governments budget for next year is $1billion and this would cover $500m for infrastructure that
includes building a dam for future electricity needs and roads to cover a growing population.
$200m is earmarked for healthcare and another $200m for education and $100m for
unemployment. When we add the discouraged worker in the unemployment numbers (and if
this is critically high) then the government would need to put more, say $200m. Say the
government was only able to collect $800m in taxes, then the deficit would be from $200m to
$300m and instead of just borrowing $200m the government would now need $300m added to
the national debt.

II. In this module we are told that resources are scarce... WOW!! ...we live in the USA...
nothing is scarce! Also ... we must make choices... again ... we live in the USA we can
choose from hundreds or thousands of things. So in the USA the economic thought that
resources are scarce and each society must choose how they want to use the "limited"
resources...
just
MAY
not
apply
to
this
Rich
Nation
??

If I am incorrect...Please explain why and correct me (in detail). Good Luck, Jim
Resources are always finite and because of that scarcity comes into play. Resources include our
income or money we allocate for goods and services. As most of us know there is not enough
money to allocate to all our wants and needs. Even though there is an illusion of plenty in our
groceries and markets, we dont have enough resources to purchase everything we need. A
discussion might be brought to fore about the elite rich part of our population that can buy to
their hearts contents must also allocate their money to investments, charity and other
instruments that will make them more money or service debts that they also have. This rich
nation we have to remember is now $17 trillion in debt with a 318 million population according
to the US census Bureau. If we divide our national debt by each of us presently living, each of us
would owe our creditors to the tune of $53,459. Unless you have that amount lying around, I
think we can safely say that there is no excess but actually we owe creditors hence we are not
rich. If we look at this from this point of view, the money we earn is but an illusion of excess but
in reality is not even sufficient. If its not even sufficient then we can conclude it is scarce. Being
scarce we need to allocate it and prioritize our purchases. We as a society must choose what
products we will produce and likewise what products we will import from other countries to
cover all our wants and needs.

References:

Klein, B. W. (1990). Who are discouraged workers? Monthly Labor Review, 113(7),
57. Retrieved from http://search.proquest.com/docview/235645765?
accountid=34899
Discouraged worker hypothesis. (1995). In Dictionary of economics, Wiley. Retrieved
from http://libproxy.edmc.edu/login?
url=http://literati.credoreference.com.libproxy.edmc.edu/content/entry/wileyecon/dis
couraged_worker_hypothesis/0

Colander, David C. Macroeconomics, 7th Edition. McGraw-Hill Learning

Solutions, 102007. Vital Book file.
http://www.census.gov/popclock/?
eml=gd&utm_medium=email&utm_source=govdelivery