Please bear with me as I work my way to how people are dropped out of the civilian labor force.
The BLS produces two sets of unemployment statistics:
* CPS (Current Population Survey) or Household Survey Data which is found in the A tables of the empsit, and
* CES (Current Employment Situation) or Establishment Survey data which is found in the B tables of the empsit
Employment Situation.
Each month the BLS surveys 60,000 households by phone. The results are put through various stastical tools and produce the
CPS or Household data. This is the source of the unemployment rate. Whether or not one is collecting unemployment insurance is not considered in producing the unemployment rate.
Each month BLS also surveys approximately 150,000 businesses and government agencies representing approximately 390,000 worksites throughout the United States. The results are also put various statistical tools and produce the
CES or Payroll / Establishment data . This is the source of the number of jobs gained / lost, hours worked, and earnings. Because some businesses are late in sending in their information, the payroll data is subject to monthly revisions.
The number of people collecting unemployment affects the annual benchmark revisions to the Establishment / Payroll data which "are derived primarily from employment counts reported on
unemployment insurance (UI) tax reports that nearly all employers are required to file with State Workforce Agencies".
* In 1994, under Clinton a major redesign of the CPS was released. Part of the redesign was to drop people out of the civilian labor force if they were considered 'discouraged' and were unemployed for over one year. Prior to the redesign, you were considered unemployed if you wanted to find a job, even if you were 'discouraged'.
Not counting the long term discouraged unemployed as part of the civilian labor force makes the unemployment rate look better, better but is reflected in the ever diminishing participation rate.
I have not been able to locate documentation detailing exactly how the BLS determines one has been discouraged for more than a year. [Some discouraged workers are counted in the U-4, U-5, and U-6 number; others are moved out of the civilian labor force but listed as wanting a job.]