LABOR FORCE

The labor force, as it is conventionally defined, is a measure of the economically active population: those persons who during a specified reference period and within a specific age range of the population are participating in the market economy by supplying labor for the production of goods and services. This concept, which was formalized in the United States during the 1930s as a way to capture the extent of joblessness during the Depression more objectively, is most relevant for modern market economies but is applied with some variations in developed and developing countries.

Definitions and Measurement

The labor force (LF), or the economically active population, can be defined as the sum of the employed population (E) and the unemployed population (U): LF = E + U.

Typically, the employed are defined for a specific age range and reference period as those who are in paid employment or self-employed, either currently at a job or with a job but not at work (e.g., on vacation or sick leave). The unemployed, also defined for the same reference period and population group, are those who are not currently in paid employment or self-employed but are available for work and actively seeking employment (or on layoff waiting to be recalled). Those neither employed nor unemployed are considered economically "inactive." Together the economically active and inactive populations constitute the total population (P) in the relevant age range. Thus the labor force participation rate (LFPR) is defined as LF/P: the ratio of the labor force (LF) to the total population (P). This measure captures the proportion of the population that is economically active at a specific point in time.

In most cases the population reference group for calculating LF, E, U, or LFPR is the working-age population, typically persons age 16 to 64. In most countries labor force statistics are based on sample surveys administered at a specific point in time to capture the primary activity status of individuals in the reference age group.

Conceptual Issues and Their Consequences

As a measure of economic activity the concept of the labor force distinguishes between economic and noneconomic uses of time and between those who are active and those who are inactive. In terms of the first distinction the emphasis on paid employment and on narrowly defined self-employment may exclude unpaid family workers who contribute to a family-owned business or farm. This distinction is more relevant at lower levels of economic development in which the agricultural sector dominates and family enterprises are more common even in the nonagricultural sector.

Because employment typically refers to any work during the reference period, no distinction is made between part-time and full-time employment, and the concept does not identify those who desire to work more hours than they actually work and are therefore "involuntarily" underemployed. In addition, most definitions of the labor force do not capture the so-called underground economy consisting of those engaged in illegal activities, and the so-called informal sector in many low-income countries may not be reflected in the recorded economic activity rates of those countries. Persons counted among the economically inactive population, P–LF, the segment that is not included in the labor force concept, are not necessarily idle. In many cases they are involved in productive activities such as child rearing, home production, volunteer efforts, acquisition of human capital through formal education, and other activities that are outside the market economy and therefore do not involve remuneration in the form of wages, a salary, or profit. In some cases time use surveys are available to gauge the allocation of time to these otherwise unmeasured activities.

The second distinction–between those actively seeking work and those not in the labor force–is largely a matter of definition. The U.S. concept of unemployment, as implemented in the government's monthly labor force survey, requires that an individual be engaged in an active job search (e.g., contacting employers in the reference period) to be classified as unemployed. Individuals who may want to work but have given up actively looking for employment, often labeled "discouraged workers," are excluded from the labor force concept. The existence of discouraged workers underlines the fact that over time the labor force is dynamic: Individuals enter the labor force by actively seeking work or obtaining a job, they remain in the labor force as employed, self-employed, or unemployed, or they leave the labor force through voluntary or involuntary departure from a job or by ceasing to look for work.

The ambiguities associated with what is defined as work or searching for work, as well as measurement errors introduced during the data collection process, mean that labor force data collected in different settings at a specific point in time are not necessarily comparable, and those data may not be comparable over time within a particular setting. Historical data in the United States before 1940 are based on the "gainful worker" concept that counted as employed only those who reported a usual occupation whether or not they were actually working. This approach tended to understate the participation rates of women, and so the measured rise in the economic activity rate of women over time (discussed below) may be overstated. Similarly, differences across countries in social, cultural, and legal norms may determine whether certain activities performed by women are counted as "economic activity" (e.g., unpaid family workers), often making female labor force measures across countries difficult to compare.

Levels and Trends

The economically active population varies across economies at a specific point in time and for the same economy over time, and the demographic composition of the labor force varies as well. In general, the process of economic development is associated with an overall rise in the measured economic activity rate as subsistence agriculture gives way to surplus agricultural production that is sold in the market and as the process of industrialization results in a pool of wage laborers. In the early stages of development a substantial proportion of the labor force is employed in the agricultural (primary) sector of the economy, in contrast to more advanced industrial economies, in which a greater proportion of the labor force is employed in the manufacturing (secondary) and services (tertiary) sectors.

Thus, the process of economic growth is associated with a shift from the primary to the secondary and eventually to the tertiary sector. In the United States, for example, the share of the labor force employed in agriculture declined steadily from 38 percent in 1900 to less than 3 percent in 2000. Since the 1970s, the proportion in manufacturing has declined, signaling the advent of the postindustrial age, and the services sector has made up the difference. In contrast, typically 40 percent or more of employment in countries classified as low-income by the World Bank is in the agricultural sector.

Female labor force patterns. With economic development, the labor force patterns can vary for different demographic groups. The economic activity rate for adult women, particularly married women, is hypothesized to follow a U-shaped pattern over the course of economic development. At low levels of development, in which certain forms of agriculture with a high demand for female labor dominate, most women participate in the labor force to a great extent, often as unpaid workers on the family farm or in small family enterprises. As incomes rise, their participation rates in the market economy decline as women increase their participation in home production, partly as a result of an income effect and often because social norms or other barriers prevent their employment in the growing manufacturing sector. With further development, women's participation in the market economy may increase as education levels and wages rise and the services sector provides more opportunities for female employment. The rise in women's labor force participation may be accompanied by other economic, social, and political transformations, such as the increased availability of market substitutes for home-produced goods, changes in family formation and the level and timing of fertility, and shifts in the power dynamics between men and women.

Tracing the upward-sloping portion of the U-shaped curve, the steep rise in the female labor force–the so-called feminization of the labor force–was one of the most significant labor force trends in the developed world in the twentieth century. In the United States, for example, about one in five women of labor force age was classified as being in the labor force in 1900; by 2000 that figure had tripled. The growth in the female participation rate accelerated during World War II and in the following decades, with a more rapid rise in the participation rate for married women than in that for single women, among whom participation rates were relatively high even in earlier times. The overall long-term growth of the female labor force has been replicated in many other developed countries, although the time path during the twentieth century differed among countries such as the United States, Great Britain, and France.

In the last decades of the twentieth century the most remarkable feature of the U.S. labor force was the increasing rates of participation among women with young children. About 70 percent of married women with one child or more participated in the labor force in 2000 compared with 40 percent in 1970, and the rate increased even faster (from 30% to 63%) for married women with children under age six. Whereas in the 1940s participation rates for women tailed off after ages 20 to 24, the life-cycle pattern for women in 2000 more closely resembled the life-cycle pattern for men, with a broad peak in the labor force participation rate at ages 25 to 44. Events, such as marriage and childbearing, that in the past would have led women to withdraw from the paid labor force, are less likely to elicit that response today.

Male labor force patterns. In high-income countries, at the same time that women have increased their rates of labor force participation, the reverse has taken place among men, largely as a result of later entry into the labor force caused by longer periods of education and earlier departure from the labor force as a result of a falling age of retirement. Again, taking the United States as an illustration, 87 percent of men of labor force age were classified as being in the labor force in 1900; by the year 2000 that percentage had fallen to 75. Among men over age 65 the reduction was from 68 percent to less than 20 percent. Similar patterns are observed in most other industrialized countries.

Over the course of the twentieth century the process and motivations for retirement changed as the secular rise in incomes and the increase in post-retirement income available through public and private pension plans allowed men to leave the labor force voluntarily to enjoy a period of leisure while living independently. This stands in contrast to earlier eras, when poor health typically might have been the primary cause for leaving the labor force and men who retired had to depend on family members for income support. In addition to rising incomes, these changes were made possible by advances in technology that reduced the price of recreation and the public provision of recreational goods and services.

The employment of children. The process of economic development also is associated with reduced rates of labor market activity for children as changes in technology and improvements in adult labor markets, along with the increased availability of (and necessity for) schooling, reduce the demand for child labor. In the United States, for example, the minimum age for being counted in the labor force was age 10 in 1900, age 14 by 1940, and age 16 by 1970. Rather than focusing on child labor per se, the debate in the United States centers on the costs and benefits for youth of participating in paid employment before reaching adulthood, and most U.S. states have some form of compulsory schooling laws and laws restricting the labor market activity of youth.

The employment of children is an issue of international concern because child labor, even at very young ages, is considerably more prevalent in many low-income countries. Although the International Labour Organization (ILO) defines age 15 as the minimum acceptable age for being economically active for most types of work, the ILO estimates that in 1995 some 120 million children age 5 to 14 were participating in full-time paid employment and another 130 million children worked part-time (ILO 1996). Despite such statistics, there is little agreement on either theoretical or policy grounds for specific courses of action in response to this situation, such as the use of international labor standards, trade sanctions, and outright bans on child labor.

LABOR FORCE

Definitions and Measurement

Conceptual Issues and Their Consequences

Levels and Trends

BIBLIOGRAPHY