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Employment: Who Is Counted In The Labor Force?

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    August 7, 2012

    Reader Denise wants to know precise definition of who is not in the labor force. That’s easy enough. The answer is found straight from the list of BLS frequently asked questions.

     Who is not in the labor force?

    Labor force measures are based on the civilian noninstitutional population 16 years old and over. (Excluded are persons under 16 years of age, all persons confined to institutions such as nursing homes and prisons, and persons on active duty in the Armed Forces.) The labor force is made up of the employed and the unemployed.

    The remainder — those who have no job and are not looking for one — are counted as “not in the labor force.” Many who are not in the labor force are going to school or are retired. Family responsibilities keep others out of the labor force.

    “Looking for a Job” is Key to Understanding Reported Unemployment Number

    The BLS description seems logical enough except it ignores those who want a job but did not look in the past four weeks.

    BLS questions (shown below) will root those people right out of the labor force.

    That raises another question about what constitutes looking for a job. Reading the want-ads in the newspaper or even doing online searches does not qualify as “looking for a job”.

    Applying for a job online constitutes looking for a job, so does going on an interview, and so does sending out a resume.

    Who is Counted as Unemployed?

    Here is the BLS description of Who is Counted as Unemployed?

     Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Actively looking for work may consist of any of the following activities:
    • Contacting:
      • An employer directly or having a job interview
      • A public or private employment agency
      • Friends or relatives
      • A school or university employment center
    • Sending out resumes or filling out applications
    • Placing or answering advertisements
    • Checking union or professional registers
    • Some other means of active job search

    Passive methods of job search do not have the potential to result in a job offer and therefore do not qualify as active job search methods. Examples of passive methods include attending a job training program or course, or merely reading about job openings that are posted in newspapers or on the Internet.
    Workers expecting to be recalled from temporary layoff are counted as unemployed, whether or not they have engaged in a specific jobseeking activity. In all other cases, the individual must have been engaged in at least one active job search activity in the 4 weeks preceding the interview and be available for work (except for temporary illness).
    The questions used in the interviews are carefully designed to elicit the most accurate picture of each person’s labor force activities. Some of the major questions that determine employment status are: (The capitalized words are emphasized when read by the interviewers.)

    1. Does anyone in this household have a business or a farm?
    2. LAST WEEK, did you do ANY work for (either) pay (or profit)?
      If the answer to question 1 is “yes” and the answer to question 2 is “no,” the next question is:
    3. LAST WEEK, did you do any unpaid work in the family business or farm?
      For those who reply “no” to both questions 2 and 3, the next key questions used to determine employment status are:
    4. LAST WEEK, (in addition to the business,) did you have a job, either full or part time? Include any job from which you were temporarily absent.
    5. LAST WEEK, were you on layoff from a job?
    6. What was the main reason you were absent from work LAST WEEK?
      For those who respond “yes” to question 5 about being on layoff, the following questions are asked:
    7. Has your employer given you a date to return to work?
      and, if “no,”
    8. Have you been given any indication that you will be recalled to work within the next 6 months?
      If the responses to either question 7 or 8 indicate that the person expects to be recalled from layoff, he or she is counted as unemployed. For those who were reported as having no job or business from which they were absent or on layoff, the next question is:
    9. Have you been doing anything to find work during the last 4 weeks?
      For those who say “yes,” the next question is:
    10. What are all of the things you have done to find work during the last 4 weeks?
      If an active method of looking for work, such as those listed at the beginning of this section, is mentioned, the following question is asked:
    11. LAST WEEK, could you have started a job if one had been offered?
      If there is no reason, except temporary illness, that the person could not take a job, he or she is considered to be not only looking but also available for work and is counted as unemployed.

    Civilian Labor Force

    Chart from St. Louis Fed.

    Notice how the labor force did not skip a beat in prior recessions. The housing bust and boomer demographics changed the trend in a dramatic way.

    If you are not familiar with “Fred” the St. Louis Fed data website, type in some terms and see what you can find. In particular, Denise and others may be interested in the Participation Rate, the ratio of those in the labor force to the civilian noninstitutional population.

    Civilian Labor Force Since 2000 

    Labor Force Barely Increased in Nearly Four Years

    The labor force peaked at 154,875,000 in October of 2008, exactly on the cusp of the great recession.

    The current labor force is 155,013,0000 barely above what it was nearly four years ago.

    This dynamic cannot be attributed to boomer retirement alone. Bernanke believes the labor force should be growing at about 125,000 a month. I think the number is closer to 75,000 a month because of boomer retirements.

    Regardless, the number should not be zero or near-zero.

    At 75,000 per month since October 2008, the labor force should have risen by 3,450,000 not 138,000. The result is a huge unwarranted drop in the stated unemployment rate. I will have more on this idea in a subsequent post.

    Mike “Mish” Shedlock
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    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.