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Labor Force

Updated on January 29, 2024
Article byKhalid Ahmed
Reviewed byDheeraj Vaidya, CFA, FRM

Labor Force Definition

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.

Labor Force

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For eg:
Source: Labor Force (wallstreetmojo.com)

Key Takeaways

  • 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 Explained

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 macroeconomicMacroeconomicMacroeconomics aims at studying aspects and phenomena important to the national economy and world economy at large like GDP, inflation, fiscal policies, monetary policies, unemployment rates.read more 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.

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Inclusions and Exclusions in Labor Force

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.

Labor Force Participation Rate (LFPR)

The LFPRLFPRThe labor force participation formula refers to the formula used to calculate the active workforce of the economy concerning its total population.read more 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:

[Labor force/Total civilian, non-institutional population]*100

Calculation Example

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 =[31,200,000/50,000,000]*100=62.4%

How Labor Force Affects the Economy?

It affects an economy in the following ways:

Frequently Asked Questions (FAQs)

1. Define the labor force of an economy.

The labor force is the sum of the employed and unemployed workers of a country. Only those unemployed workers are included who are actively searching for a job. The discouraged workers are excluded from the count. These are those who want a job but have not been looking for it in the past four weeks.

2. How to calculate the labor force?

It is calculated by adding the employed workers to the number of unemployed persons who are looking for a job. The unemployed persons who have not been looking for a job since the past one month are not added.

3. How to calculate the labor force participation rate (LFPR)?

The LFPR is the percentage of the population that is working or actively seeking work. Its formula is stated as follows:
[Labor force/Total civilian, non-institutional population]*100

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 – 

Reader Interactions

Comments

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  2. Ajuna Sarapion says

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