90 Million People Are Not in the Labor Force!

Over 90,000,000 people are not in the labor force in this country! 

Why did the number of people not in the labor force increase by 663,000 people in March?    

This must be a horrible thing!  (Or..... not?)   

Breaking down the "Not in the Labor Force" pie:

As usual, whenever the unemployment rate ticks down, the naysayers will point out--- with alarm--- the increasing number of people who are "not in the labor (work) force". The assumption seems to be that the job situation is so miserable that people are dropping out of the labor force, ceasing to look for work, by the droves.

Let me make something clear:  YES, we still do have a problem with unemployment and underemployment in this country.  But misrepresenting the facts and numbers of labor participation and who is or who is not in the labor force will NOT clarify the issues of unemployment one tiny bit.  So let's look at some of those facts and numbers.

First of all, people "not in the labor force" are NOT "unemployed". "Unemployment" has a very specific meaning for labor economists.  It means:

1. People not working for pay, not for an employer and not self-employed.
2. People who want a job or some kind of employment.
3. People who are ACTIVELY seeking (within the last four weeks) a job or some kind of employment.  People who want a job but who aren't looking for work are NOT considered unemployed, which makes sense.  (If you aren't looking for work, how is an employer supposed to find you?  Is the job fairy supposed to sit on your head?)  

The reality of people "not in the labor force" may be different than you have been led to believe.  Considering all of the hullabaloo about "people dropping out of the labor force", this chart may surprise you:

Who Are the People "Not in the Labor Force"?  (Don't miss the breakdown of the additional 663,000 people who are "not in the labor force" in March 2013 at the bottom.)

Are people really dropping out of the labor force?

Well, first of all, "dropping out" of the labor force for whatever reason, including  despair of not finding a job, is not the definition of "not in the labor force".  Let's explore what it means when someone talks about people "not in the labor force" and people "dropping out of the labor force".   

How do you get to be "not in the labor force"? 

People "not in the labor force" first of all, have to be IN the "civilian non-institutional population age 16+";  in other words:

• At least age 16, 
• Not in the military,
• Not in prison, not in a nursing home or similar institution.
• There is no upper age limit to the civilian non-institutional population age 16+, so 85 year old grandmas would be counted as "not in the labor force" if they live at home or with family. 

To be "not in the labor force", people are not employed  at all, not full time, not part time, not self-employed.  They can also not be actively searching for work.  If they have been actively searching for work in the past four weeks, they are considered to be "unemployed".  (See the discussion a few paragraphs above:  If a person is unemployed, "actively searching for work" according to the Bureau of Labor Statistics, they have made at least one attempt to find work in the prior four weeks through such means as submitting an application, going for an interview, or talking to a potential employer.)

Let's repeat this:  

• People in the civilian non-institutional population who are actively, officially unemployed are IN the labor force.
• People in the civilian non-institutional population who are employed (full-time, part-time, self-employed) are IN the labor force.
• All other people in the civilian non-institutional population are NOT IN the labor force.

How do people "drop out of the labor force"?

1)  They stop working and they do not look for work.  Or:  2)  They were unemployed and they stop looking for work.  There are a few exceptions:  People who are on temporary layoff from their jobs are in the labor force and are counted as unemployed and do not have to look for work while they are on temporary layoff.  People who are ill or on vacation but have a job and intend to return to work ARE in the labor force and are counted as employed.  

People may leave the labor force if they quit their jobs to stay home with their children, if they become disabled and cannot work, if they retire.  Also young people in high school or college may not be working and may not be looking for work while they are enrolled in school.    

But "dropping out of the labor force" is not necessarily the same as being "not in the labor force".  When young people turn 16 years old, unless they have a job or are actively looking for a job, they are "not in the labor force" by definition.  Since they never were in the labor force, they haven't dropped out.

Also assuming that people who leave the labor force do so because they are in despair about not finding a job is a very bad, very misleading assumption, as you will see at the bottom of this page in the discussion of labor market "flows".     

What about all of those people dropping out of the labor force in March 2013?
 
Last month, March 2013, the unemployment rate fell to 7.6%, with 11,742,000 people actively looking for work.  Though the number of unemployed people fell, the total number of people employed also fell in March.  As a result, there are about 496,000 fewer people "in the labor force" (either employed or actively looking for work) in March.

Now, any monthly variation should be taken with a grain of salt.  As it is, we have over 1,266,000 more people employed than we did a year ago and about 944,000 fewer people officially unemployed.  The labor force (work force) as a whole is larger than it was a year ago by about 321,000 people.

In any event, as the size of the labor force decreased in March, and the number of people "not in the labor force" increased to 90,483,000, critics jumped upon this increase to surmise that all of these people are leaving the labor force, "dropping out of the work force" in some stage of misery, discouraged because they cannot find work.  They use this number, the number of people "not in the labor force" as evidence of some kind of "failure" on the part of President Obama and the Democrats.      

What we know and don't know about people "not in the labor force"

First, we have no idea WHY most people are not in the labor force; that is, we don't know why someone stopped working, is no longer looking for work,  or never worked or looked for work, which is the definition of  "not in the labor force". Did they retire? Go to school? Stay home with a baby? Become disabled? Did they stop looking for work because they gave up on finding work?  Are they independently wealthy and don't need to work?  We don't have the definitive answer to these questions. 

We DO know, however, how many people not in the labor force (who aren't working or actively looking for work) "want a job", and we have some figures on why those people who "want a job" have not looked for work in the past month. We also have a good idea about how many might be so discouraged that they decided to stop looking for work.  We know more about the 16-24 year old crowd and how many of them are or are not still in school.  

People Age 55+ 

Yep, that big bright pink piece of pie on the chart above represents 46,929,000 people who are 55+ years of age and claim that they DO NOT want a job.  That is over half of the 90,483,000 people in the "civilian non-institutional population age 16+" who are "not in the labor force". 

Notice the relatively tiny slivers of people in this age bracket who want a job but have not looked in the past year ( yellow sliver), and the even smaller sliver of people in this age bracket who want a job and HAVE  actually looked for work in the past year (green sliver).  Over all, 53.6% of the people "not in the labor force" are 55 or over.  That's 48,500,000 out of 90,500,000.  To repeat, of the 48,500,000 people 55+ and over not in the labor force, 46,900,000, or 96.7%, say that they DO NOT want a job.  As we said above, over half of the people "NOT in the LABOR FORCE" are in that one big bucket.

People Aged 25-54

We know less and can surmise less about the 25-54 year olds who are not in the labor force.  Again very few of them "want a job" when compared to the people in this age group who DO NOT "want a job".  We can assume that many in this group are people who are home with their children, but we don't know this from any statistics provided by the Bureau of Labor Statistics.

We know that there are about 23,640,000 people aged 25 to 54 who are not in the labor force and that most of them, 20,841,000 (88.2%) do NOT want a job.  Those people are represented by the silver pie piece.  The smaller slivers of pie represent people who are not in the labor force but want a job and HAVE looked for work within the past year (aqua blue sliver of pie) and people who are not in the labor force but want a job who HAVE NOT looked for work in the past year (coral sliver of pie).  


People Aged 16 - 24

The Bureau of Labor Statistics includes people who are 16 or over, not in the military, and not institutionalized as part of the "civilian non-institutional population".  This includes young people in high school and college.  

It should not be surprising that a very low percentage of these young people,  54.5%, are "in the labor force"; that is, they are either employed or actively looking for work.  Also, most people in this age group who are "in the labor force" are either working part-time or looking for part-time vs. full-time work.  Very few teenagers (16 to 19 year olds) say they want work want full-time work.  Only about 3.4% of 16 to 19 years olds want full-time work.  

The overwhelming majority of people who are "not in the labor force" in the 20-24 year old age group are people who are in school (red piece of pie).  A much smaller population is not in school and not in the labor force (blue piece of pie).  In this group of people who are not in school and not in the labor force, women outnumber men about 2 to 1, so we can assume that at least some of these people are not in the labor force because they are tending young children.  

The Civilian Labor Force numbers

There are 244,955,000 people in the "civilian non-institutional population 16+" in this country in March 2013.  155,028,000 are IN the civilian work force, meaning they are either employed or actively looking for work.  89,967,000 are "NOT IN the labor force" meaning they are NOT employed or earning money through labor and they haven't looked for work in the past month, though they may have been employed or looked for work in the past year.  (The numbers used in the graph are seasonally unadjusted "raw" numbers, as the breakdown isn't available in seasonally adjusted numbers.  As a result, the total of people not in the labor force is a bit larger in "raw" numbers than it is in seasonally adjusted numbers.)      

Breakdown of those "Not in the Labor Force"
 
The pie represents the breakdown of the 90,483,000 people not in the labor force:

Age 16 - 24:  18,325,000 people

• In school:  14,817,000  (red piece of pie - 16.4% of pie)
• Not in school:  3,507,000 (blue piece of pie - 3.9% of pie)
• (Note:  Some of both groups want a job (2,010,000 in total), with 1,016,000 having looked in the past year.  This is not broken down on the pie chart above.) 

Age 25 - 54:  23,640,000 people

• DO NOT want a job:  20,841,000 (silver piece of pie - 23.0% of pie)
• Say they want a job but HAVE NOT looked in the past year:  1,404,000 (coral piece of pie - 1.6% of pie)
• Want a job and HAVE LOOKED in the past year:  1,395,000 (aqua blue piece of pie - 1.5% of pie)

Age 55+:  48,519,000 people

• DO NOT want a job:  46,929,000 (bright pink piece of pie - 51.9% of pie)
• Say they want a job but HAVE NOT looked in the past year:  1,019,000 (yellow piece of pie - 2.1% of pie)  
• Want a job and HAVE LOOKED in the past year:  571,000 (green piece of pie - 0.6% of pie)  

Labor Force "Flows"

The labor force is very volatile.  Millions of people are hired, fired, or quit their jobs every month.  Millions join and leave the labor force every month.  The monthly jobs reports use "net" numbers, so the number of people employed this month, for instance, is equivalent to the number of people who were working in the last month PLUS the number of people who were hired in the last month MINUS the number of people who were "separated" (quit, laid off, fired, retired) in the last month.  When we have more people hired than people who quit, were laid off, or retired, we have INCREASES in jobs and employment.  When we have more people who quit, are laid off, or retired than we have people who were hired, we have DECREASES in jobs and employment.

The "flows" reports tell us how many people moved from "employed" to "unemployed" or from "not in the labor force" to "employed" every month.  In March 2013, 4,204,000 people who were employed in February left their jobs and are not looking for other jobs.  Retired?  Disabled?  Taking a temporary break from employment?  As mentioned above, we really don't know, but we do know that they had a job in February and now they aren't even looking for work.  Despair?  If they aren't looking for work?  Not likely, as they were working last month!

Meanwhile, this group is offset by 3,724,000 people who were not in the labor force in February who looked and found jobs.  We have 480,000 MORE people "net" who were employed in February but are now not in the labor force.

Meanwhile, 2,745,000 people who were unemployed (actively looking for work) in February 2013 stopped searching for work for some reason, perhaps including despair, but we don't know that for sure.  This group was offset by 2,685,000 people who were not in the labor force in February but started looking for work (and thus became officially unemployed) in March.  So we actually had 60,000 fewer people in the labor force and looking for work in March than we had people not in the labor force who started to look for work.

What's the bottom line with this "flows" stuff?
The bottom line of "flows" is that the biggest increase in people "not in the labor force" came from people leaving EMPLOYMENT, NOT from people giving up job searches for whatever reason, including despair.

The Arithmetic of 663,000 Additional People Who Are "Not in the Labor Force":

• 480,000 people left employment and are NOT looking for work.
• 60,000 people who were looking for work STOPPED looking for work.
• 124,000 people who joined the "civilian non-institutional population 16+", mostly young people turning 16, (315,000) MINUS the number of people who died, went into the military, were institutionalized, or otherwise left the "civilian non-institutional population 16+" (191,000).
• Those numbers do equal 664,000.   

More information about people "Not in the Labor Force" and the Labor Participation Rate HERE.

The numbers for this article were taken primarily from these two Bureau of Labor Statistics charts:  Persons not in the labor force by desire and availability for work and Employment of the civilian non-institutional population 16 -24 years of age.