Michele Walker lost her job working for a rental management company in the Pittsburgh area in the spring of 2008. She had held a job for the past 21 years and figured that she, her husband, and her adult son would be fine till she could find work again. “Back then, I even thought about getting a part-time job, and cutting back,” she says, sighing. But then her husband was laid off, followed by her son. She and her husband’s unemployment checks did not meet their fixed expenses, and so they spent their savings over the course of the next two years, drawing down their 401(k) plans and even dropping their health insurance.

This spring, the checks stopped coming entirely.

Their situation became direr, and they started cutting back — turning off the air conditioning and heat, keeping most lights off, switching grocery stores, even selling their laptop to use the computer at the library to cut back on the cable bill. Walker has contemplated selling their house — once a dream, now a burden, with the gutters needing to be replaced and the bushes needing to be cut — so they can move in with family in Ohio. No matter how many résumés Walker sent out, no many how many businesses she visited — dozens a month, she says — she never managed to find another permanent position. For now, she is selling handmade birthday cakes and other baked goods for cash, advertising by word of mouth and church flier.

Much of the coverage of the June labor market report released on Friday focused on the drop in the unemployment rate, from 9.7 to 9.5 percent, or the 83,000 private-sector jobs created. But the headline numbers hid the reason for the dip in unemployment: not more jobs, but fewer workers. Walker, like 652,000 others across the country, is jobless and has not looked for a position during the past four weeks — and therefore has officially been reclassified as a “discouraged” worker, a person “marginally attached to the labor force,” rather than an unemployed one.

“I’ll start looking again when things turn up,” she says. “And my husband is still looking. Both of us are willing to do just about any job at this point.”

These discouraged workers are part of a broad, and troubling, phenomenon. During the first four months of the year, 1.7 million workers flooded the job market, heartened by good economic news. But in the past two months, as the recovery has faltered, nearly 1 million workers have fallen back out.

The overarching story of the size of the labor market during the recession is no more encouraging. Increases in the size of the United States’ population mean the labor force should have expanded by around 3.5 million workers during the 30 months between the start of the recession and last month. Instead, it has lost 128,000 people. Those 3.6 million — the ones who didn’t enter the workforce and the ones who left it — make up a class of “missing workers,” people who in better economic times would be producing goods and services, and contributing to the United States economy. Now, they do not even show up in the official counts of the unemployed and employed.

The June employment numbers give a glimpse into who the “discouraged” workers are. Between May and June, the labor force declined in every category — young and old, male and female, black and white, Hispanic and Asian. But some demographic groups suffered particular harm. For every 35 men who dropped out of the labor force in June, 65 women did. Black workers made up 33 percent of the dropouts, though they make up just 11.6 percent of the labor force. Additionally, the number of people with college degrees in the labor force in June increased slightly, while the number without college or high-school diplomas declined.

The people hit hardest, though, were young workers, between 16 and 24 years old. They made up 44.5 percent of the June decline, though they comprise only 13.5 percent of the labor force overall. Those young workers — who suffer from the highest unemployment rate out of any demographic group, particularly for young black men — also tend to suffer from the worst effects from periods of unemployment.

The long-term impact on these discouraged workers may be worse than simply a temporary spell of unemployment. Long periods of joblessness tend to leave workers — particularly young ones — with permanent scars: lower incomes in the future and more trouble finding work for years. The long-term unemployed often find it harder to get work in good labor markets as well. They lose their skills and confidence and often have trouble switching from shrinking industries into growing ones. Like all members of the long-term unemployed, they tend to suffer from more depression, health issues, and even relationship troubles and divorce, due to the financial, personal, and emotional stress of joblessness.

At the same time that the ranks of the “discouraged” and “missing” are growing, Congress is at an impasse in reauthorizing federally extended unemployment benefits — with Republicans insisting that the spending not increase the deficit. Some have even argued that over-generous benefits — the average unemployment check is about $310 per week — “spoil” workers. But Heidi Shierholz, an economist at the Economic Policy Institute, argues that further unemployment benefits might have actually kept some of those 652,000 who left the labor market last month looking for jobs.

“When you’re in a downturn like this, the logic gets flipped on its head,” she explains. “To receive unemployment benefits, you need to be looking for work. You are actually required to be looking for a job, whereas if you aren’t getting unemployment insurance, and there aren’t any jobs, you might lose your incentive to look for work.”

Shierholz says the June labor market report indicates that workers are dropping out once they exhaust their benefits, or after months of fruitlessly searching for a job in an economy where five people are competing for everyone opening and most economists do not foresee unemployment dropping to levels below 8 percent for years. “Even in a time of strong economic growth, there is lots of churn in the labor market and lots of people leave and later re-enter the labor force. There are plenty of good reasons to drop out — to go to school, or to take care of a relative,” she says. “But when it happens en masse, during a period of labor-market weakness, it is a further signal of weakness. The canonical example is someone who says, ‘I’ve knocked on every door in town 10 times. This is futile.’ And there is a lot of that happening right now.”

And she worries that next month, the statistics might be worse. Starting at the end of May, 300,000 people per week began losing their unemployment benefits due to congressional dithering on the extenders package — an unprecedented event, given the sustained, sky-high unemployment rate. The June unemployment survey took place too early to count most of them. Now, 1.7 million Americans have lost their unemployment insurance — and the survey will pick them up in the July numbers. By then, the question will be whether they will raise the unemployment rate — or simply contribute to the tidal wave of people exiting the job market.

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