Labor Force

The labor force (LF) refers to the number of persons working (employed) and not working but actively seeking work (unemployed). It excludes the homemakers, retired personnel, and discouraged workers from the count. Discouraged workers are those who are currently not looking for a job though they would like to have one.

The labor force represents the working population of a country. Greater it is, more the human capital of a nation. Further, the productivity of a nation depends on the number of products and services produced by its labor force. So, economists and financial experts study this metric to assess the well-being of an economy.

• The labor force includes the employed and the unemployed who are looking for work actively. The discouraged workers, retired population, and homemakers not working are excluded from this.
• The labor force participation rate determines the health of an economy. This rate is computed and published by the Bureau of Labor Statistics (BLS) in the US.
• The unemployed individuals who want a job, but have not been looking for it in the previous month, are not included in the labor force.
• A nation’s productivity, competitiveness, and efficiency are highly dependent on the quantity and quality of its labor force.

Labor force includes the population above 16 years who are either working for pay or have lost their job and are looking for one. The Bureau of Labor Statistics (BLS) computes and publishes the labor force participation rate (explained in the next section) in the United States. This rate is an indicator of labor trends at the macroeconomic level.

The employed and unemployed persons counted in the labor force are explained as follows:

Employed–Any of the following pointers must be met to be counted as employed in the labor force.

• It includes those who work for at least 1 hour a day in their own business or someone else’s business. Such workers get paid for their contribution.
• It includes those who are unpaid and work for fifteen hours or more in a business owned by their family.
• It includes those who are temporarily absent on account of marriage, illness, natural calamity, vacation, and other personal reasons.
• It includes those who are employed full-time and part-time. The full-timers work for thirty-five hours or more in a week.

Unemployed–Both the following pointers must be met to be counted as unemployed in the labor force.

• It includes those who do not meet the preceding category of “employed” persons.
• It includes those who are available for work or have been looking actively for work in the previous month.

The unemployed persons included and excluded from the count of the labor force are stated as follows:

Unemployed included in the count of the labor force

• It includes the job losers. These have been laid off against their will or due to recession and are looking for employment.
• It includes the job leavers or job abandoners. These have left the job as per their will but are currently seeking employment.
• It includes the reentrants or job re-joiners. These were working previously, left their job, and are currently looking for a job.
• It includes the new entrants or job starters. These have never worked previously in their life but are presently seeking employment.

Unemployed excluded from the count of the labor force

• It excludes those who do not want a job or have not made any efforts to find a job for themselves in the previous month.

• It excludes those who have stopped looking for work due to a pandemic, recession, and other external factors.

• It excludes those who are not interested in working or want to stay at home for some reason.

• It excludes those who are available for work but are not seeking employment or have given up the job search.

Therefore, merely “wanting employment” is not sufficient to be counted in the labor force as unemployed. It is essential to actively look for a job to be counted in the labor force.

The LFPR is the labor force (sum of the employed and unemployed persons) divided by the working population (16 years and above) of a country. Its formula is expressed as follows:

*100

John obtains the following information from the Census Bureau of the United States for a particular period.

• Total US residents who are employed=30,000,000
• Total unemployed persons=3,000,000
• Total civilian, non-institutional population=50,000,000
• Total unemployed individuals looking for a job in the last one month=40% of the total unemployed persons

Being an economist, John wants to calculate the labor force and LFPR of the US. His calculations are specified as follows:

=40%*3,000,000

=1,200,000

So, 1,200,000 is the number of unemployed persons who are actively seeking a job currently.

Total labor force of the US=30,000,000+1,200,000=31,200,000 people

LFPR =*100=62.4%

It affects an economy in the following ways:

• It has an impact on the productivity of a nation. Productivity is measured by the number of products and services produced by the labor force in a given period. Sectors like agriculture, mining, healthcare, textiles, etc., are highly dependent on labor. So, a higher workforce in these sectors enhances the overall productivity of a country.
• It is an indicator of growth in an economy. With more and more women joining the working population, the labor force of the US has increased over the past 20-30 years.
• It encourages innovations by bringing in diversity. Innovations in sectors like information technology, manufacturing, and e-commerce have been possible due to the diverse workforce of the US.
• It indicates a recessionary period of an economy if the LFPR reduces compared to the previous years. This implies that the unemployed population is growing faster than the employed population.

This has been a guide to the labor force in the US. Here we explain the LFPR and how the it affects the economy along with examples. You can learn more from the following economics articles – 

• Labor Theory of Value
• Labor Productivity
• Labor Market