Rising Discouraged Workers Reveal Hidden Weakness in U.S. Labor Market

In June 2024 the unemployment rate fell to 4.2 percent, while labor-force participation slipped to its lowest level in five years. The Bureau of Labor Statistics recorded 1.83 million marginally attached workers, including about 499 000 discouraged workers who have stopped looking. Because they are not actively searching, they are excluded from the unemployment rate, creating a statistical illusion of improvement while demand weakens.

Newsweek

Marginally attached workers rose to 1.83 million in June, the highest since November; discouraged workers hit 499 000, the highest since January; marginally attached workers now account for about 1.7 percent of the non-labor-force, up from 1.6 percent earlier; the unemployment rate fell to 4.2 percent from 4.4 percent in May, driven largely by the participation decline.

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Heather Long, chief economist at Navy Federal Credit Union, called the June jobs report “eyebrow-raising” because of participation drop and cautioned that a month does not set a trend. Jeff Roach, chief economist at LPL Financial, warned that marginally attached workers may suppress the unemployment rate, noting that a strong economy pairs low unemployment with robust participation. Alí Bustamante, director of the Worker Power and Economic Security program at the Roosevelt Institute, called the rise a “warning sign.” BLS excludes discouraged workers from the unemployment rate, creating an illusion when participation falls.

Newsweek

Economists say the 4.2 percent unemployment rate understates labor-market weakness, pointing to a “no hire, low fire” environment, longer job-search periods, and limited hiring beyond healthcare and a few white-collar sectors. The gap between headline unemployment and broader underutilization measures suggests a softer labor market than the headline rate implies.

Newsweek

Long warned that the sharp participation decline may be revised later in the summer, leaving uncertainty about the trend’s durability. Although discouraged workers are at their highest since January, the count matches June 2023 levels and was higher at the same point last year, creating ambiguity over whether the rise reflects a structural shift or a temporary fluctuation.

Newsweek

• “The June jobs report has some eyebrow raising data, especially the big drop in the labor force,” — Heather Long, chief economist, Navy Federal Credit Union

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• “It's tough to square the shockingly low job creation in June with a lower unemployment rate,” — Jeff Roach, chief economist, LPL Financial

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• “The unemployment rate probably isn’t as low as 4.2 percent. It only fell in June due to the big drop in people looking for work. That’s not something to celebrate, though it may be a statistical quirk that doesn’t last,” — Heather Long

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Analysts expect the BLS to issue revised June figures by late summer, which could adjust the marginally attached count and participation rate. Continued monitoring of broader labor-utilization metrics will be needed to determine whether the unemployment rate truly reflects job availability.

Newsweek