What they’re not telling us, however, is that when people’s unemployment benefits run out and when people “drop out” by ceasing to search for jobs period, this all goes into the equations they use to calculate U3 unemployment as “credits.” Perversely, if half a million people give up and stop looking for jobs because they are discouraged about not finding something after 18 months, this helps to drop the unemployment rate.
http://finance.yahoo.com/news/Payrolls-fall-in-January-rb-514835788.html?x=0&.v=2
A sharp increase in the number of people giving up looking for work helped to depress the jobless rate. The number of ‘discouraged job seekers’ rose to 1.1 million in January from 734,000 a year ago.