Defining the Labor Force

Unemployment is an important issue addressed in the study of macroeconomics. A person is unemployed if he or she is willing and able to work, actively job searching, yet still unable to find a job. Therefore, by definition, people who are voluntarily idle are not classified as unemployed because they are not actively searching for a job. Just those people who are not working but actively looking for a job are counted as unemployed. Sometimes people become tired of looking for a job or believe they won't be able to find one and they are called discouraged workers.

The labor force is defined simply as the people who are willing and able to work. The size of the labor force is used to determine the unemployment rate.The percentage of the unemployed in the labor force is called the unemployment rate.

Unemployment Rate = (Number of Unemployed / Labor Force) * 100

Labor Force =  Number of Employed + Number of Unemployed

While studying employment, another important figure to determine is the labor force participation rate. Here, we compare the size of the labor force with the number of people that could potentially be a part of the labor force. It is important to note that we do not include people under the age of 16 in this figure. In addition, students, retirees, the disabled, homemakers, and the voluntarily idle are not counted in the labor force. The labor force as the percentage of the total population over the minimum working age is called labor force participation rate.

Labor Force Participation Rate = (Labor Force / Total Population over Age 16) * 100

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