Labor Force
What is Labor Force?
The labor force is the total number of people aged 16 and over who are employed or actively seeking employment.
The labor force includes all individuals who are willing and able to work. It consists of both employed and unemployed persons who are looking for a job. People not seeking work, such as students, retirees, and discouraged workers, are not part of the labor force.
Labor Force: a worked example
A city has 500,000 residents. Subtract 110,000 who are under 16 or institutionalized, leaving a civilian noninstitutional adult population of 390,000. Within that group, 225,000 hold paying jobs, 25,000 are jobless and applied for work in the past month, 75,000 are retired, 40,000 are full-time students not seeking work, and 25,000 are discouraged workers who quit searching. The labor force is employed plus actively searching unemployed, which is 225,000 plus 25,000, or 250,000. The other 140,000 adults are out of the labor force. The participation rate is 250,000 divided by 390,000, times 100, which is 64.1 percent. The unemployment rate is 25,000 divided by 250,000, times 100, or 10 percent. The two rates run on different denominators, participation against the adult population and unemployment against the labor force.
The mistake students make with labor force
Using total population as the denominator wrecks the unemployment rate. Given a city of 500,000 people, students divide 25,000 unemployed by 500,000 and report 5 percent, because the population figure appears first in the problem and feels like the natural base. The unemployment rate divides by the labor force, which here is only 250,000, so the answer is 10 percent. A population count also sweeps in children, retirees, and everyone else outside the labor force, so the two denominators are never close. Strip the population down to the labor force before dividing.
Labor Force questions
Who is counted in the labor force?
The labor force includes everyone aged 16 and over who is either employed or unemployed and actively searching for work in the recent past. Part-time workers, unpaid workers in a family business who put in substantial hours, and people on temporary layoff waiting to be recalled all count as employed. Excluded are children under 16, active duty military, people in institutions, retirees, full-time students not seeking work, stay-at-home parents, and discouraged workers who stopped looking.
How do you calculate the labor force participation rate?
Divide the labor force by the civilian noninstitutional population aged 16 and over, then multiply by 100. A labor force of 250,000 inside an adult population of 390,000 gives 250,000 divided by 390,000, times 100, or 64.1 percent. The denominator is not the whole population, since it strips out children, active duty military, and institutionalized adults. A falling participation rate can reflect retirements, more people in school, or workers becoming discouraged.
Are stay-at-home parents and students part of the labor force?
Stay-at-home parents and full-time students sit outside the labor force as long as they are not working and not searching for work. Both groups move in the moment their status changes: a student who takes a part-time job counts as employed, and a parent who starts sending out applications counts as unemployed and inside the labor force. Membership depends on what a person is doing about work, not on age, schooling, or household role.
Related terms
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