Our economy is increasingly buffeted by powerful forces, both internal and external, which include: the globalization of most markets, corporate downsizing, shifts from commodity production to jobs focused on services, waves of immigration, broad movements of women into labor markets, growing cadres of temporary and part-time workers, major changes in where people work, the birth of some major industries (e.g., microelectronics and bioengineering), and the virtual demise of some minor ones (e.g., radio repair or blacksmith shops).

Changes in the Supply of Labor

The Department of Labor classifies adults as employed, unemployed, and as either in or out of the labor force.

The labor force (LF) consists of all employed (E) or unemployed (U) civilians over age 16 plus members of the Armed Forces stationed in the United States. Thus, LF=E+U.

A labor force participation rate (LFPR) is the proportion in the labor force from a specific group. For the total labor force, the LFPR = LF/Population.

The employment–population ratio is total employment (E) relative to the population (Pop) or E/Pop.

The unemployment rate is the number unemployed as a percent of the labor force or U/LF.

            Table 1 lists these data for selected years for the United States since 1960. The growth rate of the U.S. labor force over this period exceeded population growth by nearly 30 percent, which is reflected in a rising employment to population ratio. The labor force almost doubled, primarily through increased female labor force participation (shown in Table 1) and immigration (shown in Figure 1).

Figure 1  Immigration as a Growing Share of Population Increases 1960 - 1997

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Immigration has become a more important source of population growth in recent decades. Immigrant workers often highly skilled (one-quarter are college graduates) and come primarily from Asia and Latin America.  

Source: Business Week, July 13, 1992.

Table 1:  Population and Labor Market Measures (1960-1993)
Selected Indicator	1960	1970	1980	1996	Percentage change 1960-1993
Population in 1000s (Pop)	117245.0	137085.0	167745.0	200,591	65.4
Labor Force (LF)	69628.0	82771.0	106940.0	127975.0	83.8
Employed (E)	65778.0	78678.0	99303.0	119457.0	—
Unemployed (U)	3852.0	4093.0	7637.0	8517.0	—
Employment-Population           Ratio (E/Pop)	56.1	57.4	59.2	61.6	9.8
Unemployment Rate (U/LF)	5.5	4.9	7.1	6.7	—
Labor Force Participation Rates (LF/Pop)	59.4	60.4	63.8	66.0	11.1
Males	83.3	79.7	77.4	76.7	-7.9
16-19	56.1	56.1	60.5	49.4	-11.1
20-54
55-64	86.8	83.0	72.1	67.0	-22.8
Over 65	33.1	26.8	19.0	16.1	-51.4
Females	37.7	43.3	51.5	58.3	54.6
16-19	39.3	44.0	52.9	48.4	23.1
35-44	43.3	51.1	65.5	85.2	96.8
Over 65	10.8	9.7	8.1	8.6	-20.4
White	58.8	60.2	64.1	66.6	13.3
Black & Other	64.5	61.8	61.7	62.2	-3.6
Source: Economic Report of the President, 1997 and U.S. Depart of Labor, Bureau of Labor Statistics, Employment Hours and Earnings and Monthly Labor Review, various dates.

 

            Total labor force participation rates have grown by slightly over 10 percent since 1960, primarily because women increasingly pursue careers outside their homes—labor force participation rates for females grew almost 55 percent between 1960 and 1995. Although a majority of workers are male, labor force participation among males fell almost 8 percent during this period. In the last two decades, immigration has accounted for over one-third of total U.S. population growth and has been the second largest source of gain in human resources. Nearly a quarter of new immigrants have college degrees (about the same proportion as for the economy as a whole), adding to our stock of skilled workers.

 

            Two other demographic trends profoundly affect labor supplies: The growth in the number of two-earner households and in the number of households headed by women. Nearly 13 percent of all working women today are primary breadwinners for their families. These trends have led to growing numbers of households that are relatively better-off (two earners) and growing numbers that are relatively poor (women who support families), leaving middle-income families in America declining as a percentage of all households.

 

Changes in the Demand for Labor

            Broad changes to the supply side of our national labor market have been matched by dramatic changes in demands for labor. The demand for labor ultimately derives from consumer demands for goods and depends on workers' productivity. Certain ongoing changes in product markets profoundly affect labor productivity.

 

            First, globalization, especially in markets for manufactured goods, has intensified competition in numerous industries. For example, not too many years ago, carmakers based in Michigan virtually "owned" the international automobile market. Today, foreign assembly plants provide one-fourth of all new cars sold in the United States, and several foreign-based carmakers (e.g., Toyota, Honda, and Mercedes-Benz) now operate production facilities in the United States.

 

            International competition is changing domestic labor requirements. The drive for cost-efficiency means that skilled labor commands premium wages. However, less-skilled Americans increasingly must compete with lower-cost foreign labor. International trade tends to equalize the wages of domestic workers with those of comparably skilled foreigners. Thus, free international trade erodes the incomes of less skilled Americans while boosting wages for low-skilled foreign workers. At the same time, skilled Americans gain by producing for foreign markets and by buying imported goods at lower prices. Some American firms and industry will prosper in this competitive environment, but others will fail. Competing successfully in the global economy requires flexibility—workers must possess portable skills that allow career moves between firms and, perhaps, industries.

 

            Second, for several decades U.S. employment has been shifting from commodity production to the provision of services.  High wages in service industries tend to be earned primarily by skilled professionals, e.g., medical doctors, accountants, and engineers, but many workers in service industries tend to be relatively unskilled. As shown in Figure 2, jobs in manufacturing as a percent of total employment have fallen by half since 1950. Productivity gains historically have been most rapid in the manufacturing sector, with rising productivity then boosting wages and standards of living. The decline in the relative importance of U.S. manufacturing has slowed productivity gains. In part because service productivity has grown relatively slowly, our standard of living has improved at only sluggish rates in recent decades.

Figure 2 MISSING

Figure 2  U.S. Employment in the Goods-Producing, Service, and Manufacturing Sectors 1950 - 1993

 

Production in the United States has been shifting from goods-production to service industries. Today, 4 out of 5 workers are engaged in providing a service. This shift partially explains overall slowing of our productivity gains—productivity tends to grow much slower in service industries than in manufacturing or goods production.

 

 

            Third, recent government policies about labor markets have altered employer-employee relationships. Laws governing health, safety, disability, family leave, plant closure, and civil rights have combined with increased Social Security taxes and pension reform legislation to increase the cost of hiring, retaining, firing and laying-off workers. Many of these policies, while desirable, raise both labor costs and the legal exposure for firms. The fastest growing division in many firms is their human resource department, which deals with employee issues raised by expanded federal legislation. As both the wage and nonwage costs of labor rise, relative to other resources, business firms seek lower-cost substitute resources. At the margin, such increases ultimately result in fewer employees being hired—especially full time career employees.

 

            Firms increasingly rely on part-time and temporary help. Workers who once viewed themselves as career employees are often cast adrift. Growing numbers of workers are lumped together as the contingency work force.

The contingency work force consists of part-time and temporary employees plus business service providers plus the self-employed.

            Figure 3 shows that the ranks of contingent workers are growing as firms adjust their hiring practices to use more part-timers, freelancers, independent subcontractors, and consultants. These temporary employees can be contracted for and dismissed with considerable ease. They also permit firms to cope with unexpected changes in workflow. Current projections suggest that as many as half of all workers may be in the contingency workforce by 2010.

Figure 3  The Contingent Work Force

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The contingent work force includes part-time and temporary workers, business service providers, and the self-employed. This group of workers has been growing as a percent of the labor force over recent decades. Contingent workers allow business to quickly adjust to changing market needs. Some economists argue that this trend toward use of contingent workers arises from labor market regulations that have substantially increased the costs of full-time employees.

Source: Federal Reserve Bank of Cleveland, Economic Trends, November 1993

 

 

            Many individuals trickled into the contingency work force as a consequence of corporate downsizing, but for perhaps as many others, becoming a contingent worker has been a conscious choice that was largely unavailable before the revolution in information technology. These workers find constant change a pleasurable challenge, or they enjoy the freedom of working at home, consulting or pounding away on the keyboard of a PC, surfing the net, and communicating via cellular phones or fax machines.

 

            All of the changes we have addressed pose problems for the measurement and interpretation of statistics about employment and unemployment.