Outside the Labor Force
Categories: Econ, Metrics, Accounting
Every month, the U.S. government releases its employment report. One of the highlights of the report is the unemployment rate. This stat represents the lobster dinner of economic figures. Along with GDP, the unemployment rate provides the most commonly cited measure of how the U.S. economy is doing.
The unemployment rate measures the percentage of people in the labor force who can't find a job. This is pretty straightforward. Low unemployment means most people have jobs. Most people are getting paychecks, meaning that most people can afford mortgages, cars, Internet connections, Sea-Doos, bejeweled dog collars, decorative salt shakers, etc...all the fuel that makes the consumerist economy go 'round.
There's a catch though. The unemployment rate isn't calculated by dividing the number of people without jobs by the total number of people in the country. Instead, the number gets divided by the number of people who want a job.
There are plenty of people who are perfectly content not having a job. And these folks aren't just deadbeats and frustrated screenwriters. There are children and college students, housewives and househusbands, retirees, lottery winners, jet-setting heiresses, grifters, beach bums, and the like.
This fact means that there are actually three groups related to the labor market: 1) people who have jobs, 2) people without jobs who want to get a job, and 3) people outside the labor force.
The government defines this third group as "persons who are neither employed nor unemployed," which sounds like a Buddhist riddle or an ancient prophecy about the type of hero who will eventually slay a mystical dragon. The Labor Department also includes the slightly more concrete definition, though, saying that a person outside the labor force is a person who is "neither working nor seeking work." Mazel tov to them.
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Econ: What is Outside the Labor Force?3 Views
And finance Allah Shmoop what is outside the labor force
Well how do you know if you're in the labor
force That might feel like you're working hard But well
that's not the real test Working hard at homework for
school doesn't get you paid At least not right now
Taking care of your kids Well it doesn't get you
paid Actually Probably cost you money taking care of your
own lawn We'll know that doesn't get you paid either
So what's the standard Well first let's define the term
What is the labor force Oh uh different type of
labor force The economic labor force is made up of
all the people in the economy who are looking to
sell their labour in the open market Seems straightforward enough
right There are people who are employed like people working
in factories or in offices or all sorts of other
places All right well then there are people who aren't
employed like these people This guy you know them well
then there's the gray area This guy not so sure
He's got a definite task He's working for an organization
He's gotta trudge through the snow all day but well
he's not collecting wages As far as we know If
you get up every morning and do something that gets
you paid then you're counted as being employed in the
labor force The key part is that you're getting paid
your trading your labor on the open market for cash
Ola if you spend all day sitting in the basement
drinking Mountain Dew and watching reruns of Law and Order
s V U You know collecting unemployment checks and you
are officially unemployed Yeah Shocking So all of this is
true but it's a bit more complicated in real life
There are actually three categories of people when it comes
to the labor market the employed the unemployed and those
outside of the labor force Yeah right Wait What does
that look like Pronounced poodle If this is the big
term that confuses million's or at least one hundred thirty
four people who report economic data and follow it and
actually know what they're reading right Well this group represents
the invisible part of the labor market The lives people
don't talk about them all that much almost like they
don't want to admit that they exist a lot like
you know these guys you don't want to run into
them in a dark alley But the outside the labor
force people actually represent now a sizable portion of the
US population and it's an important concept Keep in mind
if you're really gonna understand Ky e con stats especially
the unemployment rate and what it actually means that any
you know depth because the data's pants are on fire
so often well the unemployment rate is royalty In the
world of economic statistics you could say it's the king
of stats With GDP being the queen all other staffs
bow before it Politicians love to quote the unemployment rate
Ah high rate means the economy stinks and everyone in
Washington should be fired and get replaced A low rate
means everything is going great and the bureaucrats and politicians
get keep living off our tax dollars But there's a
missing piece The outside the labor force peace It has
to do with how the word unemployed is defined to
be officially unemployed that is included in the unemployment rate
number You need to be looking for a job actively
So if this guy's happy living off his parents playing
a fortnight all day not bothering to look for a
job Well he wouldn't qualify He wouldn't count in the
numbers He'd be ignored The unemployment rate isn't calculated by
dividing the number of people without jobs by the total
number of people in the country that be the denominator
there Instead the number gets divided by the number of
people who want a job Not all the people just
the people who want a job But there are plenty
of people who are perfectly content with not having a
job at all And and not just this guy There
are children and college students There are housewives and house
husbands too You don't forget them Well there are retirees
There are lottery winners There are jet setting Harris is
There are grifters There are beach bums drug dealers and
busking street mimes and someone so back to our three
groups Well first we've got people who have jobs and
people without jobs who want to get a job These
folks are actively looking for work but haven't found anything
yet And yes our new favorite people people outside the
labor force loves the government defines this third group as
persons who are neither employed nor unemployed like not a
and not be Sounds like the answer to a Zen
riddle right Or maybe an ancient prophecy about the type
of hero who will eventually ride a mystical dragon But
luckily the Labor Department also includes with slightly more concrete
definition They say that this group includes people who are
neither working nor seeking work Yes a final recap employed 00:04:34.539 --> [endTime] unemployed but life Yeah winter is definitely coming