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

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And finance Allah Shmoop what is outside the labor force

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Well how do you know if you're in the labor

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force That might feel like you're working hard But well

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that's not the real test Working hard at homework for

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school doesn't get you paid At least not right now

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Taking care of your kids Well it doesn't get you

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paid Actually Probably cost you money taking care of your

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own lawn We'll know that doesn't get you paid either

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So what's the standard Well first let's define the term

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What is the labor force Oh uh different type of

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labor force The economic labor force is made up of

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all the people in the economy who are looking to

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sell their labour in the open market Seems straightforward enough

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right There are people who are employed like people working

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in factories or in offices or all sorts of other

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places All right well then there are people who aren't

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employed like these people This guy you know them well

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then there's the gray area This guy not so sure

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He's got a definite task He's working for an organization

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He's gotta trudge through the snow all day but well

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he's not collecting wages As far as we know If

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you get up every morning and do something that gets

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you paid then you're counted as being employed in the

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labor force The key part is that you're getting paid

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your trading your labor on the open market for cash

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Ola if you spend all day sitting in the basement

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drinking Mountain Dew and watching reruns of Law and Order

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s V U You know collecting unemployment checks and you

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are officially unemployed Yeah Shocking So all of this is

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true but it's a bit more complicated in real life

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There are actually three categories of people when it comes

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to the labor market the employed the unemployed and those

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outside of the labor force Yeah right Wait What does

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that look like Pronounced poodle If this is the big

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term that confuses million's or at least one hundred thirty

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four people who report economic data and follow it and

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actually know what they're reading right Well this group represents

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the invisible part of the labor market The lives people

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don't talk about them all that much almost like they

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don't want to admit that they exist a lot like

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you know these guys you don't want to run into

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them in a dark alley But the outside the labor

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force people actually represent now a sizable portion of the

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US population and it's an important concept Keep in mind

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if you're really gonna understand Ky e con stats especially

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the unemployment rate and what it actually means that any

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you know depth because the data's pants are on fire

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so often well the unemployment rate is royalty In the

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world of economic statistics you could say it's the king

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of stats With GDP being the queen all other staffs

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bow before it Politicians love to quote the unemployment rate

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Ah high rate means the economy stinks and everyone in

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Washington should be fired and get replaced A low rate

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means everything is going great and the bureaucrats and politicians

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get keep living off our tax dollars But there's a

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missing piece The outside the labor force peace It has

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to do with how the word unemployed is defined to

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be officially unemployed that is included in the unemployment rate

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number You need to be looking for a job actively

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So if this guy's happy living off his parents playing

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a fortnight all day not bothering to look for a

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job Well he wouldn't qualify He wouldn't count in the

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numbers He'd be ignored The unemployment rate isn't calculated by

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dividing the number of people without jobs by the total

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number of people in the country that be the denominator

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there Instead the number gets divided by the number of

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people who want a job Not all the people just

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the people who want a job But there are plenty

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of people who are perfectly content with not having a

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job at all And and not just this guy There

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are children and college students There are housewives and house

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husbands too You don't forget them Well there are retirees

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There are lottery winners There are jet setting Harris is

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There are grifters There are beach bums drug dealers and

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busking street mimes and someone so back to our three

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groups Well first we've got people who have jobs and

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people without jobs who want to get a job These

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folks are actively looking for work but haven't found anything

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yet And yes our new favorite people people outside the

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labor force loves the government defines this third group as

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persons who are neither employed nor unemployed like not a

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and not be Sounds like the answer to a Zen

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riddle right Or maybe an ancient prophecy about the type

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of hero who will eventually ride a mystical dragon But

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luckily the Labor Department also includes with slightly more concrete

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definition They say that this group includes people who are

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neither working nor seeking work Yes a final recap employed 00:04:34.539 --> [endTime] unemployed but life Yeah winter is definitely coming

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