Labor Force and Its Impact on the Economy

Are You Officially in the Labor Force?

Labor force
••• Photo: Erik Isakson/Getty Images

The labor force is the number of people who are employed plus the unemployed who are looking for work. The labor pool does not include the jobless who aren't looking for work.

For example, stay-at-home moms, retirees, and students are not part of the labor force. Discouraged workers who would like a job but have given up looking are not in the labor force either. To be considered part of the labor force, you must be available, willing to work, and have looked for a job recently. The official unemployment rate measures the jobless who are still in the labor force.

The size of the labor force depends not only on the number of adults but also how likely they feel they can get a job. So, the labor pool shrinks during and after a recession. That's true even though the number of people who would like a full-time job if they could get it may stay the same. The real unemployment rate measures all the jobless, even if they're no longer in the labor force.

The U.S. Bureau of Labor Statistics measures the labor force. It provides the monthly employment report, which also provides the nation's current unemployment rate. 

Characteristics

In 2019, there were 165 million people in the labor force. It was the fourth largest labor force in the world, after China, India, and the European Union. Over half, or 53.1 percent, were men and 46.9 percent were women.

The median age was 42.2 years old. The median tells you the point where half the people are older and half are younger. Of those, 5.1 million were teenagers between 16 and 19 years. Another 9.2 million were older than 65. The rest were in prime working years of 20 - 64 years old.

In 2016, health care was the biggest industry, employing 14 percent of the labor force — if you count both jobs in the health care sector and health-related jobs in other industries. Retail trade was next, putting 11 percent of the labor force to work. Manufacturing employed 11 percent, and education employed 9 percent. Technical and professional services employed 8 percent, while hotels employed 7 percent.

Trends

The labor force participation rate is the number of people who are available to work as a percentage of the total population. The rate increased between 1960 and 2000 as women entered the labor force. In January 2000, it reached a peak of 67.3 percent. The 2001 recession lowered it to 65.9 percent by April 2004. The 2008 financial crisis lowered it more to 62.3 percent by October 2015. By November 2018, it had only risen to 62.9 percent.

That drop should mean that the supply of workers is falling. Fewer workers should be able to negotiate for higher wages. But that didn't happen. Instead, income inequality increased as average income levels suffered.  Workers couldn't compete when jobs were being outsourced. They also couldn't compete with robots. Businesses found it more cost-effective to replace capital equipment instead of hiring more workers. 

Productivity is the amount of goods and services that the labor force creates.  It's measured by how much is produced by a certain amount of labor and a fixed amount of capital. The more they create, the higher their productivity. Companies seek ways to boost productivity because it increases their profit. High productivity creates a competitive advantage. That's true for the individual worker, a company, or a country.

Outlook

The BLS expects the labor force to increase by 8.4 million jobs from 2018 to 2028. Jobs that require a master’s degree will grow the fastest. Those that only need a high school diploma will grow the slowest. 

The fastest growth will occur in health care and social assistance as the American population ages.  The next most substantial increase will occur in private educational services.

Manufacturing jobs will decline as a result of both technology and outsourcing. Manufacturers constantly find more lower-cost ways to produce their goods. As a result, they are automating manufacturing processes. The jobs that remain will require training to manage the computers.

The U.S. labor force is facing more competitive labor from other countries that can pay its workers less. Countries like China and India have a lower standard of living. It's the main reason why American jobs are being outsourced.

How It Affects the U.S. Economy

The United States has a highly skilled and mobile labor force that responds quickly to changing business needs. Almost 30 percent of the labor force has at least some level of college or associate degree. Only 7.7 percent did not attain a high school diploma. That level of education is better than 25 years ago.

But U.S. investment in its human capital has slipped. For example, U.S. students' math skills have remained roughly stable since 2000. At the same time, those in other countries have improved. As a result, U.S. math test scores have fallen below the global average. 

Labor mobility is much higher in the United States than in other developed countries. Americans are three times as likely as Europeans to move to find a better job. These mobile workers have greater flexibility to negotiate wages, change employers, and start businesses. 

U.S. labor mobility is partly because the country was built through immigration. America has 50.7 million immigrants, more than any other country. Most of them had the courage and flexibility needed to survive in a new country. That’s one reason Americans have historically been more willing to take risks.

Immigration means the U.S. labor force is more culturally diverse than in other countries. Diversity in the workforce brings fresh perspectives based on different experiences. It has created lots of innovation, especially in technology. That diversity helps make Silicon Valley the world's leading tech center.

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