Discouraged Workers

This more multidimensional conception of job search can also help us to understand the component of unemployment known as "discouraged workers." These are unemployed people who don't actively seek a job, because they are "discouraged" and don't expect to succeed, but who would accept a job at a going wage if one were offered to them.

One reason we know that there are some discouraged workers is that the measured labor force grows when unemployment is low. People who weren't counted as unemployed (because they were not actively searching for work) when there weren't many jobs to be had seem to change their minds and look for work when the odds of finding a job are good.

A discouraged worker, then, is a person who would accept a job but makes no effort at all at job search. For such a person, the marginal effort cost of going on even one interview a week is greater than the benefit from the search, that is, the probability of getting a satisfactory job. Thus, the rational amount of job search effort is zero.

Remember that

The benefits from job search effort depend on the productivity of the search;
The productivity of the search depends partly on the opportunities available, so
Few opportunities means low productivity means low benefits means low (or no) effort.

But when a recovery in production creates more opportunities, the productivity of search improves, and consequently the benefits from some search are greater than the costs -- so the "discouraged worker" becomes an active job-seeker and (perhaps) finds a job.

Equilibrium?