(63,818,000)

Issues

U.S. Department of Labor

Bureau of Labor Statistics

Issues

Summary 00–13 June 2000

in Labor Statistics

With the unemployment rate at a 30-year

low and employment continuing to

expand at a robust pace, many economists and

policy makers are scrutinizing labor statistics

for signs of tightness in the labor market. Some

are concerned that the demand for labor will

outstrip supply, leading to upward pressure on

wages that could possibly ignite inflation.

Many economists wonder how long wage gains

can remain moderate in the face of strong employment growth, low unemployment, and,

presumably, a dwindling supply of potential

workers.

This summary highlights some of the concepts often used in the discussion of potential

labor supply. There are no official definitions

for, and hence no official estimates of, the potential supply of workers. However, existing

data are discussed briefly to gain some insight

as to how to begin to gauge the size of the potential supply of labor—broadly defined herein

as persons not working who could conceivably

become employed. The analysis also demonstrates how difficult it is to construct a meaningful measure of this group of persons.

The unemployed—currently available

and looking for work

Data from the Current Population Survey

(CPS) provide information on the employment

status of the civilian noninstitutional population aged 16 and older. The population is divided into persons who are in the labor force—

comprising persons who are employed and

those who are unemployed—and persons not

in the labor force. Most would agree that unemployed persons constitute unutilized labor

resources. These persons represent existing

labor supply, in that (by official definition) they

are available for work and most are currently

engaged in an active search for a job. In some

sense, they also represent potential workers,

given that they have not yet been successful in

their job search. In 1999, the number of unemployed persons averaged 5.9 million.

Persons not in the labor force: do they

want a job or not?

Moving beyond the unemployed to look for

an additional labor reserve, one can evaluate

those who are neither working nor actively

looking for work—that is, not in the labor

force. These individuals have varying degrees

of interest in taking a job. In 1999, for example,

4.6 million persons outside the labor force were

reported to currently want a job. (See chart.)

Within this group, there were 1.2 million who

were marginally attached to the labor force (including discouraged workers)—that is, they

were available for work and had searched for

a job sometime in the year preceding the survey, but were not currently looking for work.

The 4.6 million people who indicated that they

wanted a job cited a variety of reasons for not

currently looking for work. Some reported that

they were in school, others had family responsibilities, and some were disheartened about

their employment prospects. These and other

reasons reflected conditions that may have been

preventing their entry into the job market at

the time they were being surveyed.

Assuming that all those who indicated they

wanted a job could, under different circumstances, enter the job market, there would be

4.6 million persons, in addition to the unemployed, who represented potential labor supply. Together, the sum of unemployed persons

and those not in the labor force who want a job

has been called the pool of available workers.

This unofficial measure is used to gauge

Labor Supply in a Tight Labor Market Labor Supply in a Tight Labor Market

Discouraged workers

(273,000)

Marginally attached workers

(1,201,000)

SOURCE: Bureau of Labor Statistics, Current Population Survey

Want a job,

have not searched

for work in prior year

or have searched

but not available

(3,367,000)

 

  



 



 

 

( )(9(

(63,8((18,000)

(63,818,000)

Persons not in the labor force, 1999

annual averages

 (63,818,000)

Want a job (4,568,000)

Persons not in the labor force,

1999 annual averages

Want a job (4,568,000)
changes in the potential labor supply.1

But what about persons (some 63.8 million

in 1999) who are not in the labor force and do

not want a job now? Are there conditions under which they might enter the job market, even

though, when surveyed, these persons give no

indication of interest in working? The answer

to this question is almost certainly yes. Circumstances for individuals change over time,

as does the job market. A person who does not

want a job today because of family obligations,

for example, might enter the job market tomorrow, if those obligations change. Similarly, the

availability of a job with a particular mix of

wages and other terms of employment might

draw a person into the job market. But there is

little information available from the CPS that

can be used to identify these persons a priori.

Therefore, it is quite difficult to determine the

number of persons not in the labor force who

do not currently want a job but who could be

considered potential workers. Nevertheless,

given the sheer magnitude of the group, it

should be emphasized that, if even a small fraction of these persons were prone to enter the

job market at some point, it would represent a

substantial supply of labor resources.

Population growth—a steady source of

labor

Finally, it must be recognized that labor supply changes also originate from net changes in

population. From 1998 to 1999, the workingage population grew by about 2.2 million (on

a net basis, after adjustment for changes in CPS

population controls). Given that almost twothirds of the population was employed in 1999

(64.3 percent), and assuming that roughly this

same percentage of the net population inflow

entered into employment, there was a net

increase of about 1.4 million in employment

in 1999, due just to population growth. Overall, employment (as measured by the CPS) increased by about 2 million from 1998 to 1999,

so population growth alone was likely the

source for much (about three-fourths) of the

net growth in employment in 1999.2

Ultimately, when one considers the possible

sources of labor supply at any given time, the

number of potential workers is perhaps quite

large. How large it is, and whether it is growing or shrinking, unfortunately are very difficult questions to answer precisely.

For a technical description of the Current

Population Survey (from which the data used

in this report were derived), contact Steven E.

Haugen, Office of Employment and Unemployment Statistics, Bureau of Labor Statistics,

Washington, DC 20212. Telephone: (202)

691-6378; e-mail: Haugen_S@bls.gov

Information in this report is available to

sensory impaired individuals upon request.

Voice phone: (202) 691-5200; Federal Relay

Service: 1-800-877-8339. The material is in

the public domain and, with appropriate credit,

may be reproduced without permission.

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1

 For example, the Board of Governors of the

Federal Reserve System tracks changes in the

pool of available workers to help evaluate labor

supply conditions. See, for example, its “Monetary

Policy Report to the Congress,” February 17, 2000

(www.bog.frb.fed.us/boarddocs/hh/2000/

february/fullreport.htm). 2

 The actual dynamics of the labor market are much

more complex than indicated by the study of net

changes. In reality, the number of jobs that must be

filled each year is far greater than net employment

growth. Millions of people leave the labor force each

year, and the jobs they held also must be filled.