In this series we’ve talked quite a bit about goods and services.
Now it’s time to look at the people who produce all those goods and services.
These are people who perform labor, which means they must have a job. But how do we determine
who has a “job” and who doesn’t? The answer is actually more complicated than one might think.
Economists define the labor force as all nonmilitary people who are both employed
and unemployed. However, different countries often define the labor force in different ways.
In the United States, the Bureau of Labor Statistics determines how many people are
in the labor force. They consider people to be employed if they are 16 years or older and meet at
least one of the following requirements. One, they worked at least one hour for pay in the past week.
Two, they worked fifteen or more hours without pay in a family business.
Or three, they held jobs but did not work due to either sickness, vacation, labor disputes,
or bad weather. Typically, those who are not included in the labor force include
full-time students, stay-at-home parents, retired people, active military, the institutionalized,
and those who have given up looking for employment for an extended period of time.
What if someone has more than one job? They’re still only counted once in the labor force.
Technology is constantly changing the labor force. In the early days of the United States,
most citizens were farmers. Throughout the 1800s, however, the economy transformed
due to the Industrial Revolution, a time of rapid economic expansion caused by the
shift from agriculture and production by hand to factories and production using machines.
By the early 1900s, heavy manufacturing had become the main driver of the American economy.
In the second half of the 1900s, a boom in electronics created a new wave of factory
jobs. Beginning in the 1970s, the revolution in personal computers led to yet another boom.
Due to rapidly changing technology, over the past few decades service-producing industries have
been far outpacing good-producing industries. Globalization has also dramatically changed
the labor force in recent years. While the number of service jobs has increased, the
United States has lost millions of manufacturing jobs, mostly due to outsourcing and offshoring.
Outsourcing is when a company contracts with another company to do a specific job that would
otherwise be done by a company’s own workers. Most companies outsource work in at least some way.
Offshoring is when a company shifts some of its operations, or resources of production,
to another country. More often than not, companies outsource and offshore in order to save money,
as they can pay workers in other countries less than workers in their own country.
As less-skilled manufacturing jobs moved overseas, the Americans who had filled
these jobs had to find new work, and many had to go back to school or enter new job training
programs in order to gain new skills. Because of this, it is increasingly the case that a high
school diploma alone is not enough to prepare Americans for financial success. Therefore,
post-secondary education has skyrocketed in popularity over the past few decades.
Economists have two explanations for the connection between educational advancement
and higher wages. The first theory, called the learning effect, says that education increases
efficiency of production, and therefore leads to higher wages. The second theory, called the
screening effect, says that the completion of college signals to employers that a job
applicant is both intelligent and hard-working. Other trends in recent years include a shift
toward a more diverse labor force, an increase in part time workers, and a shift toward what
is known as a “gig economy.” A gig economy is a labor market characterized by freelance work,
as opposed to permanent jobs. Instead of a worker staying with one company, in a gig economy that
worker would have short-term contracts with various companies. Whatever career you decide on,
you will have to be prepared for change, as labor markets are increasingly dynamic. At some point in
your life, you will almost certainly be a part of the labor force, whether you want to be or not. So
it’s best to be prepared in advance, which means we’d better continue to learn about economics.