The Prideful Worker Effect
By Bryan Caplan
Both economists and laymen often claim that unemployment statistics paint an overly rosy picture of the labor market. Why? Because they refuse to count discouraged workers as “unemployed.” To qualify as “unemployed,” you have to look for a job. But especially during recessions, many workers who genuinely want jobs abandon their search because their efforts seem hopeless.
The next step: As soon as the discouraged workers tell the government they’ve stopped looking, they’re officially converted from “unemployed” to “out of the labor force.” This problem seems unusually important during the recent recovery – the unemployment rate is falling, but so is the labor force participation rate.
I have no doubt that the Discouraged Worker Effect is real and sizable. But almost no one discusses a potentially important offsetting effect. I call it the Prideful Worker Effect. Key idea: Some officially unemployed workers have unreasonably high expectations. They focus their job search on positions for which they are underqualified – and ignore lower-status but more realistic opportunities. Officially, they’re “unemployed.” In reality, though, we should probably consider them “out of the labor force.”
Intuitively, I’m not an unemployed astronaut, because I’m not an astronaut at all. If I held out for a job as an astronaut, the statistician who codes me as “unemployed” turns my delusion into a folie a deux.
The Prideful Worker Effect, like the Discouraged Worker Effect, is a matter of degree. We could argue for hours about whether any particular individual belongs in either box. So it’s no wonder that official statistics prefer bright lines, even if the bright lines are misleading. But vagueness has not prevented economists from trying to measure the prevalence of discouraged workers. Why not come up with some plausible measures of prideful workers, and see what we find?