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Labor Force Participation

Here we look at some definitions about the labor force from a measurement point of view.

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People under 16 or in an institution

People not wanting to work

For purposes of measuring employment concepts a person can only be in one of these categories:

People working

People not working but looking to work

A B E U

I have called each block by a letter.

Population = P = A + B + E + U, Labor force = LF = E + U,

Unemployment rate = U/LF,

Labor force participation rate = LF/(P-A).

So, the labor force is made up of those folks working or looking to work. The unemployment rate is % of labor force unemployed, while the participation rate looks at labor force as a % of the population.

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Example:

A = 22, B = 23, E = 50, U = 5.

Unemployment rate = 5/55 = .091, Labor force = 55.

Labor force participation rate = 55/(100-22) = .71

Discouraged Worker

A discouraged worker is one who has been looking for work, but eventually quits looking for work because they can not find a job. The discouraged worker moves from the U group to the B group and is no longer counted in the unemployment statistics. From our example if 2 of the U group moves to the B group then the unemployment rate becomes 3/53 = .057.

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Hidden unemployment

From the previous screen we see with the discouraged workers the unemployment rate is 5.7%. These folks have given up, but really wanted to work. If they were counted the rate would be 9.1%.

The discouraged worker is considered to be hidden unemployment and because of this we know the measured unemployment rate is too low. How much low is hard to tell.

Next let’s look at some graphs of labor force participation I created in Excel from data the author had in the book.

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Labor Force Participation of Men

0

20

40

60

80

100

120

1880 1900 1920 1940 1960 1980 2000 2020

All Men

Men 25-44

Men 45-64

Men 65+

The participation rate of all men is the third line down from the top and we see it is drifting downward. The participation rate among men 65 and over is really declining!

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Labor Force Participation of Women

0

20

40

60

80

1880 1900 1920 1940 1960 1980 2000 2020

Women * represents women once married but not now due to death, divorce or separation

All Women

Single Women

Married Women

Women *

Note the participation rate for women is on the increase. This is especially true for women once married but not now due to death, divorce or separation.

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Labor Force Participation of Women and Men

0

20

40

60

80

100

1880 1900 1920 1940 1960 1980 2000 2020

All Men

All Women

Note the convergence of the participation rates of men and women.

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Here we have seen some graphs about labor force participation rates. These graphs give a view of the folks wanting to work. Next let’s turn to a model about why people want to work. More formally, we turn to the labor supply model called the neoclassical model of labor-leisure choice.