Employment Research

Are Economists Underestimating the Labor Force Participation Rate?

Official U.S. labor market measures, such as the unemployment rate and the labor force participation rate, are produced monthly by the U.S. Bureau of Labor Statistics (BLS). A recent Boston Fed working paper by Anat Bracha and Mary A. Burke titled “Who Counts as Employed? Informal Work, Employment Status, and Labor Market Slack” considers whether nonstandard work arrangements (a.k.a. the “gig economy”) are being accurately represented in the official BLS measures and offers ways to improve their accuracy.

Key findings from the paper:

• The authors surveyed respondents 21 years of age and older who are not retired and found that 37 percent participate in paid informal work. When those engaged exclusively in informal renting and selling activities were removed, that number dropped to 20 percent.
• If all informal workers were classified as employed, the labor force participation rate would have been slightly more than 2 percentage points higher.
• If only informal workers with at least 20 hours of informal work per week were counted as employed, both the employment-to-population ratio and the labor force participation rate would increase by between 0.5 and 1 percentage point.

Based on their findings, the authors suggest expanding the time frame for questions about when work activities were performed to capture these nonstandard “gig” work arrangements in reporting employment statistics. Inquiring about work performed in the previous month in addition to work performed in the previous week would offer workers with activities concentrated within one or two weeks of the month an opportunity to accurately record their activities.

Read the full report here.