Discouraged workers - where have they gone?

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1 Autumn 1992 (Vol. 4, No. 3) Article No. 5 Discouraged workers - where have they gone? Ernest B. Akyeampong One of the interesting but less publicized labour market developments over the past five years or so is the low number of discouraged workers. Another is the changing composition of the group. Discouraged workers are defined as jobless persons who want to work and yet are not job-hunting because they believe, for various reasons, that no suitable work is available. (1) Because these people are not actively looking for work, they are not counted in the unemployment numbers. (2) Their number in March 1992, at 99,000, was only half the level recorded in the wake of the last recession (197,000 in March 1983). With respect to the group's profile, among the most revealing changes are that, compared with the situation a decade ago, today's discouraged worker is less likely to be a youth, and is more likely to be better educated. This article briefly traces recent trends in the discouraged worker group and offers some reasons why its numbers during the recent recession, and indeed over the past several years, have been running at about half what they were in the early 1980s. It also compares the characteristics of today's discouraged workers with those of their counterparts at that time. Interestingly, the diminished growth in the number of discouraged workers during the recent economic downturn is not unique to Canada. A similar phenomenon is being observed in the United States, where the increase has also been much smaller than anticipated (1.8 million in the first quarter of 1983 compared with 1.1 million in the first quarter of seasonally adjusted data). This raises the question: where have the discouraged workers gone? The Survey of Job Opportunities (SJO), as well as other survey and administrative data, provide some of the answers. Reduced numbers: underlying factors file:///n /LHSBR/LHSAD/PERSPECT/Pe9235.htm (1 of 8) [5/31/01 10:22:20 AM]

2 The number of discouraged workers in March 1992 (99,000) was half the level of March 1983 (Chart A). All the major age groups saw some decline in their numbers, but the extent of the drop varied. At the extreme end, youths saw their number cut down to one-third the 1983 level, while at the other end, persons aged 45 to 54 saw their number reduced to about 70%. Chart A The increase in the number of discouraged workers in the recession of the early 1990s is much smaller. Source: Survey of Job Opportunities Table 1 Persons who want work and are available for work by reason for not seeking work in the reference week, March 1979 to March Source: Survey of Job Opportunities Among the factors contributing to the low figures of discouraged workers during the recent economic recession are: the declining share of youths in the working age population; an increase in educational institution enrolment (and retention) and in training in general; an increasing trend towards early retirement; and, an apparent shift of some potential discouraged workers into the "waiting for recall" group. Fewer young people The fall in the number and share of young (15 to 24 year-old) discouraged workers can partly be traced to the reduced numbers of youths in the working age population. In March 1983, this group numbered 4.4 million and comprised 23% of the working age population. By comparison, in March 1992, the corresponding estimates were 3.7 million and 18%. Not surprisingly, therefore, youths featured less prominently in the 1992 discouraged worker group. Increased educational institution enrolment and training Administrative records also show a significant rise in school, college and university enrolment (and retention) during the recent recession. With reduced or non-existent job opportunities, many job seekers file:///n /LHSBR/LHSAD/PERSPECT/Pe9235.htm (2 of 8) [5/31/01 10:22:20 AM]

3 are adopting various educational strategies to improve their employment prospects. Some are entering or continuing in school rather than remaining in or entering the workforce. Data from the Association of Colleges of Applied Arts and Technology of Ontario, for example, show a 35% increase in fall 1992 applications over the previous year. Others are enrolling in skill and trade programs sponsored by employers and governments. The number enrolled in Employment and Immigration Canada's (EIC's) Canadian Jobs Strategy Purchase of Training Program, for example, rose from about 171,000 in the fiscal year to approximately 222,000 in the fiscal year And new starts in EIC's Unemployment Insurance Developmental Uses Program rose from about 33,000 in the 1989 calendar year to about 90,000 in (3) Early retirement Another reason for the small increase in worker discouragement in this recession is the trend towards early retirement. Data from the Labour Force Survey have shown a dramatic withdrawal of older males from the labour force over the past two decades. The participation rate for the 55 to 64 age group, for example, fell from 79% in 1975 to 63% in A major reason for early retirement in recent years can be traced to revisions in the Canada and Quebec Pension Plans. In 1984, the Quebec Pension Plan (QPP), and in 1987 the Canada Pension Plan (CPP), permitted Canadians to apply for and receive retirement pensions at age 60 rather than 65 - albeit at reduced rates. The effect of these changes was to make early retirement more financially attractive for many. In 1984, about 54,000 Canadians aged 60 to 64 (hitherto excluded from pension benefits) received QPP benefits, and in 1990, approximately 128,000 Canadians in that same age group were recipients of benefits from both plans (Table 2). The availability of early retirement benefits may have caused many older job losers with few or obsolete skills or those living in areas with very high unemployment to opt for early retirement. Table 2 New retirements under the Canada and Quebec Pension Plans. Sources: Quebec Pension Board and Health and Welfare Canada The increase in early retirement in recent years may also be related to the prevalence of early retirement opportunities provided in private pension plans as well as in other ad hoc early retirement incentives (for example, "the golden handshake"). Frenken (1991) provides a more detailed account of these practices. Compositional shifts A closer examination of the SJO data suggests that certain compositional shifts may provide another file:///n /LHSBR/LHSAD/PERSPECT/Pe9235.htm (3 of 8) [5/31/01 10:22:20 AM]

4 reason for the smaller numbers of discouraged workers in recent years. Notably, there appears to be a shift in numbers away from the discouraged worker ("believes no work is available") group into the "waiting for recall" group (Table 1). Up to 1984, the discouraged worker count each March was about double that of the waiting for recall group (for example, 197,000 versus 87,000 in 1983). From 1985 to 1987, the counts in the two groups were fairly even. Since then the number in the waiting for recall group has exceeded that of the discouraged worker group (for example, 108,000 compared with 99,000 in 1992). It is difficult to pin down concrete reasons for this apparent shift - a shift that appears to be concentrated among adult males - and it would be interesting to investigate if those waiting for recall actually do return to their former employers. Changing profile: 1983 compared with 1992 The characteristics of discouraged workers in 1992 differ in many respects from those of the 1983 group (Table 3). Notable among the changes are the group's age, educational attainment and geographical distribution. Table 3 Selected characteristics of discouraged workers, March 1983 and March Source: Survey of Job Opportunities Today's discouraged worker is much less likely to be a youth. In 1983, almost one in three discouraged workers was aged 15 to 24; by 1992, the ratio had fallen to roughly one in five (Chart B). As pointed out earlier, many of today's youths now choose to remain in school or pursue other training to improve their employment prospects. Another significant demographic shift is that, in 1983, women outnumbered men, but in 1992, the split was even. Chart B Comparing the recessions of the early 1980s and 1990s... Source: Survey of Job Opportunities Today's discouraged workers are also better educated. About one-quarter of the 1992 group had at least some postsecondary education, compared with only 14% in the 1983 group (Chart B). file:///n /LHSBR/LHSAD/PERSPECT/Pe9235.htm (4 of 8) [5/31/01 10:22:20 AM]

5 Discouraged workers tend to be concentrated in regions experiencing severe unemployment. This generally held true in both 1983 and 1992; however, there were some significant shifts. Together, Quebec and the Atlantic provinces have always accounted for close to two-thirds of all discouraged workers. This was the case in both 1983 and 1992, but the distribution between these two regions in those two years differed. In 1983, approximately two-fifths of the nation's discouraged workers had resided in Quebec and another one-fifth in the Atlantic. In 1992, however, Quebec's share was down to about one-third the national total and that of the Atlantic region was up to about one-third. Newfoundland alone accounted for more than half (17,000) of the Atlantic total. Compared with other provinces, British Columbia fared much better in the recent recession. Considering the severity of economic set-backs Ontario experienced during the current recession, the rise in that province's share in 1992 (to 23% from 21%) was relatively small (Chart C). Chart C Despite regional shifts, the Atlantic and Quebec still account for almost two-thirds of discouraged workers. Source: Survey of Job Opportunities There were some compositional shifts among the major industries as well, with the largest occurring in manufacturing. In 1983, approximately 18% of discouraged workers had last worked in the manufacturing industry. The comparable figure in March 1992 was lower, at only 13%. Manufacturing has a larger-than- average share of older workers. The severe economic set-back this industry suffered during the current recession may have prompted some workers to take early retirement. Conclusion The increase in unemployment during the recession of the early 1990s was almost as severe as the one in the early 1980s. Yet the number of discouraged workers this time around was only one half the level a decade ago. The decline in the discouraged worker numbers may be traced to several factors. First, a principal source of the discouraged worker population, namely youths, has diminished. Second, many people who might otherwise be discouraged workers have remained in or entered educational institutions, or become participants in employer- or government-sponsored training programs to improve their job prospects. Third, recent pension plan revisions and other early retirement incentive packages have rendered the early retirement option more financially attractive to many older workers. Finally, for reasons that are not readily apparent, many laid-off people today (more than in the early 1980s), expect to return to their former employers. file:///n /LHSBR/LHSAD/PERSPECT/Pe9235.htm (5 of 8) [5/31/01 10:22:20 AM]

6 Trends: diminished cyclical sensitivity The number of discouraged workers has shown itself to be sensitive to both cyclical and seasonal economic activity. (4) Their number (like that of the unemployed) generally falls during periods of high economic activity, and vice versa. However, the sensitivity displayed during the recent economic recession pales in comparison with that observed during the previous recession. For example, from a level of around 101,000 in March 1981, the count almost doubled to 197,000 in March 1983, in the wake of the economic recession of that period. In contrast, the increase in discouraged worker numbers has been slight during the recent recession and sluggish economic recovery, rising from 70,000 in March 1989 to only 99,000 in March Indeed, the latter figure is hardly any higher than the level recorded in March 1986, the fourth consecutive year of growth in the last economic upturn (Table 1 and Chart A). Data source: Survey of Job Opportunities In Canada, information on discouraged workers comes from two main sources. One is the monthly Labour Force Survey (LFS), which identifies persons who looked for work in the past six months but not in the four weeks preceding the survey week. The other is the Survey of Job Opportunities (SJO), a supplement to the LFS conducted each March since 1979 (except 1990). In this survey, all those expressing a desire for work and who are available for work are counted, regardless of their past job search activity. Not surprisingly, the more inclusive SJO approach shows more discouraged workers: 99,000 in March 1992, compared with 59,000 from the March 1992 LFS. The data contained in this study pertain to SJO results only. Persons who report wanting a job in the SJO may not be actively seeking one for a variety of reasons. These reasons fall into two general categories: labour market-related reasons (worker discouragement, waiting for recall to a former job or waiting for replies to earlier job search efforts) and personal and other reasons (illness or disability, personal or family responsibilities, going to school, and so on). The latest SJO results show that in March 1992, an estimated 229,000 persons reported that they wanted a job but were not seeking one for labour market-related reasons. Of these, 99,000 were discouraged workers. An additional 161,000 persons reported that they wanted work but remained outside of the labour force because of personal and other reasons unrelated to labour market conditions. file:///n /LHSBR/LHSAD/PERSPECT/Pe9235.htm (6 of 8) [5/31/01 10:22:20 AM]

7 Notes Note 1 Their belief may derive from a variety of factors including: a shortage of jobs in their locality or line of work; perceived discrimination for reasons such as age, race, sex and religion; a lack of necessary skills, training or experience; or, a chronic illness or disability. Note 2 For a detailed analysis of why they cannot be counted as unemployed see Macredie (1984) and Akyeampong (1987). Note 3 Under Employment and Immigration Canada's Canadian Jobs Strategy, only those not receiving Unemployment Insurance (UI) benefits are eligible to participate in the Purchase of Training Program. In contrast, only UI beneficiairies are eligible under the UI Developmental Uses Program. Training accounts for the bulk of funds allocated under this program, but some allocation also goes to job creation and work sharing. Note 4 For detailed analyses of the seasonal sensitivity, Macredie (1984) and Akyeampong (1987 and 1989). References Akyeampong, E.B. "Discouraged workers." Perspectives on labour and income, Quarterly, Catalogue E, Autumn Ottawa: Statistics Canada, pp "Women wanting work, but not looking due to child care demands." The labour force, Monthly, Catalogue , April Ottawa: Statistics Canada, pp "Persons on the margins of the labour force." The labour force, Monthly, Catalogue , April Ottawa: Statistics Canada, pp Frenken, H. "The pension carrot: incentives to early retirement." Perspectives on labour and income, Quarterly, Catalogue E, Autumn Ottawa: Statistics Canada, pp file:///n /LHSBR/LHSAD/PERSPECT/Pe9235.htm (7 of 8) [5/31/01 10:22:20 AM]

8 Jackson, G. "Alternative concepts and measures of unemployment." The labour force, Monthly, Catalogue , February Ottawa: Statistics Canada, pp Macredie, I. "Persons not in the labour force - job search activities and the desire for employment, September 1984." The labour force, Monthly, Catalogue , October Ottawa: Statistics Canada, pp Author Ernest Akyeampong is with the Labour and Household Surveys Analysis Division of Statistics Canada. Source Perspectives on Labour and Income, Autumn 1992, Vol. 4, No. 3 (Statistics Canada, Catalogue E). This is the fifth of five articles in the issue. file:///n /LHSBR/LHSAD/PERSPECT/Pe9235.htm (8 of 8) [5/31/01 10:22:20 AM]

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10 TE92351 Table 1 Persons who want work and are available for work by reason for not seeking work in the reference week, March 1979 to March 1992 Total Personal and other reasons* Total Waiting for recall Labour market-related reasons 000 Waiting for replies Believes no work is available** Source: Survey of Job Opportunities * Personal and other reasons include: illness and disability (45,000 in 1992); child care (28,000); other personal and family responsibilities (15,000); going to school (22,000); other, and no reason (51,000). These figures are not cyclically sensitive. ** This category refers to discouraged workers. The survey was not carried out in file:///n /LHSBR/LHSAD/PERSPECT/table/te92351.htm [5/31/01 10:23:16 AM]

11 TE92352 Table 2 New retirements under the Canada and Quebec Pension Plans Year Total Age 60 to and over * ** Sources: Quebec Pension Board and Health and Welfare Canada * QPP introduced flexible retirement. ** CPP introduced flexible retirement. file:///n /LHSBR/LHSAD/PERSPECT/table/te92352.htm [5/31/01 10:23:33 AM]

12 TE92353 Table 3 Selected characteristics of discouraged workers, March 1983 and March Total Age years years years years and over Sex Men Women Education Primary school only Some or completed high school Some or completed postsecondary (including certificates and degrees) Region Atlantic Quebec Ontario Prairies British Columbia Source: Survey of Job Opportunities file:///n /LHSBR/LHSAD/PERSPECT/table/te92353.htm [5/31/01 10:23:45 AM]

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