According to the text, if discouraged workers are not counted as unemployed, the unemployment rate will be understated during recessions. Why is this? - Jane
The unemployment rate = 100* unemployment / (unemployment + employment). An increase in the number of discouraged workers decreases both the numerator and the denominator by the same amount. But because the numerator (unemployment) is much smaller than the denominator (unemployment + employment), in percent terms the numerator declines by more. Hence the measured unemployment rate falls.