as being in the labor force, and the measured unemployment rate falls. Many would claim that this results in an underestimate of the "true" rate of unemployment.
This is not the only problem caused by the discouraged worker phenomenon. Whenever the economy recovers from a recession, these discouraged workers notice that times are better and that acquaintances have obtained jobs, encouraging them once again to look for work. These encouraged workers suddenly become counted as unemployed, causing a paradoxical rise in unemployment just when income and employment are increasing.
3.2 The Employment/Unemployment Connection
One would think that an increase in employment must surely decrease unemployment. But we have just seen that movements of discouraged/encouraged workers out of and into the labor force can cause unemployment to change in a direction opposite to that in which employment is changing. This is a special case of a more general phenomenon. Each year thousands of new jobs are created, but also each year thousands of new members of the labor force appear, wanting those jobs. What happens to the unemployment rate depends on the relative magnitudes of the growth in jobs and the growth in the labor force.
