Kaushik Basu
ITHACA — Something strange is happening in the US labor market. The latest data released by the Bureau of Labor Statistics show that the U.S. economy lost 23,000 jobs in July, yet the unemployment rate actually fell to 4.1 percent. A closer look helps explain the apparent contradiction.
To be counted as unemployed in the United States, a person must be actively looking for a job. Today, however, the job market is so bleak that people are giving up the search for work. Economists call this the “discouraged worker” effect. As a result, the unemployment rate can decline even as demand for labor falls, because the supply of labor is shrinking even faster. Some estimates suggest that more than two million people have left the U.S. labor force since November 2025.
By advanced-economy standards, the U.S. has a high poverty rate. In 2024, 10.6 percent of Americans lived below…
