The Shadow Labor Supply and Its Implications for the Unemployment Rate.” Federal Reserve Bank of Kansas City Economic Review, Third Quarter 2013

In the wake of the Great Recession, with more Americans unem-ployed than at any other time in the last quarter-century, millions of workers stopped seeking work. The crisis saw a sharp rise in the number of people who, in response to surveys, indicated they wanted a job but were not actively seeking one. As long as these individuals are not actively seeking work, they are not considered part of the labor force and are not counted as unemployed in official government sta-tistics such as the unemployment rate. The group continued to swell through the first few years of the economic recovery and, by early 2013, numbered some 6.7 million—nearly 2 million more than before the crisis. Residing on the periphery of the labor market, this group may be viewed as a “shadow labor supply.” How these people fare in the months and years to come could have an important influence on the unemployment rate. If many of these people start actively seeking jobs as the economy recovers, they will be counted as unemployed until they find work, and that could push the unemployment rate upward or at least slow its descent