Final answer:
Discouraged workers are individuals who have stopped searching for employment during times such as a recession. Their exit from the workforce can lead to a decrease in the unemployment rate, even when jobs are declining, since they are no longer counted as unemployed.
Step-by-step explanation:
Discouraged workers are individuals who have given up on looking for employment because they believe no suitable job opportunities are available. This condition often occurs during a recession, when job creation slows down, and existing jobs may be lost. Notably, discouraged workers are no longer counted as part of the labor force, which consists of people actively seeking employment. When many workers become discouraged and stop looking for jobs, it can lead to a situation where the number of jobs in the economy declines, but the unemployment rate also falls. This seeming paradox occurs because the unemployment rate is calculated based only on those actively seeking employment. As discouraged workers leave the labor force, they are no longer considered 'unemployed', hence the unemployment rate may decrease even though employment has not actually improved.
Regarding changes in the labor force participation rate, when employed individuals are reclassified as unemployed, the labor force participation rate remains unaffected since both categories are part of the labor force. However, if employed individuals become discouraged workers and thus are reclassified from 'employed' to outside of the labor force, the labor force participation rate decreases because the numerator (labor force) becomes smaller while the denominator (total population of working age) remains constant.