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A greater number of workers still remain outside the labor force

Pre-pandemic trends vs. current levels

The labor force is defined as the people who currently hold a job or are actively seeking a job. A person who is not employed and also is not looking to become employed isn’t considered part of the labor force.

When the pandemic hit in early 2020, businesses closed. A larger-than-usual portion of the labor force was suddenly without work. Some got other jobs, some kept looking, but millions left the labor force. This departure had a multitude of causes, such as early retirement, self-isolation due to the pandemic, taking care of loved ones, or frustration with an unsuccessful job search and continued access to increased federal unemployment benefits.

The FRED graph above shows that the number of people outside the labor force spiked in the spring of 2020. That number declined, as more workers re-entered the labor force over the next year, but the number is still well above what it was before the pandemic.

The red line in the graph is the 5-year trend line from January 2015 to January 2020, which we extended to the current time: More people are still outside the labor force than we would have expected, based on the trend leading up to the pandemic. In fact, there are 2.2 million more people outside the labor force than was expected, which can help explain the current tightness in the labor force.

How this graph was created: On FRED search for “not in labor force” and select the series. Set the start/end dates to January 2015 and 2020. Export the data by clicking “Download.” From your spreadsheet software, calculate a trend line from January 2015 to January 2020. Then go back to the FRED graph and click “Edit Graph.” From the “Add Line” tab, use the “Create user-defined line” to create the red line. Start the line in January 2015 with the value 93510 and end on the present day with a value of 97689. Finally, set the graph to display from 2014.

Suggested by Jack Fuller and Charles Gascon.

A review of labor market conditions

The U.S. unemployment rate stands at 4.3 percent, a value slightly lower than at the peak of the expansion in 2007. This is a sign of a very healthy labor market. The question is to what extent do other indicators of labor market health paint a similar picture.

FRED has recently added several data series that capture various measures of labor market tightness. A very tight labor market means that employers have a harder time filling open positions because most workers are employed and fewer are looking for jobs. There are several ways to capture labor market tightness: In the following graphs, we present a few of them and compare their evolution before and after the previous recession.

The first graph shows the vacancy-to-unemployment ratio and the quits rate. The blue line (left axis) is the number of vacancies per unemployed worker. When the economy enters recession, this measure declines as the number of unemployed workers increases and the vacancies per unemployed worker decrease. A low number of vacancies per unemployed worker is a sign of slack in the labor market. After the 2007-09 recession, this ratio increased at a slow pace until 2014, when it increased sharply and surpassed its pre-recession high. The red line (right axis) is the number of quits per employed worker. Similar to the vacancy ratio, this indicator declines in recessionary periods. Within the past few months the quit rate has recovered to pre-recession levels.

The second graph shows the mean level of vacancy duration and an index of recruiting intensity per vacancy. In a tight labor market, employers will have to look harder, or more intensely, to fill open positions as the number of unemployed candidates is reduced. Similarly, vacancy durations will be higher as recruiting efforts take longer in a tight labor market. Since the 2007-09 recession, vacancy durations have surpassed pre-recession levels, reaching a series high of 29.6 business days per vacancy in April 2016. The recruiting intensity index is close to its pre-recession level, but has not increased as quickly as vacancy durations.

Overall, the different indicators of labor market conditions analyzed here point to a healthy recovery of the U.S. labor market.

How these graphs were created: Top graph: Search for “Vacancy to Unemployment Ratio” in FRED and graph the series with the copyright symbol in the title (copyrighted by DHI Group Inc. and Dr. Steven J. Davis). Then click the orange “Edit Graph” button and add a line using the middle button on the top of the menu that appears to the right. Search for “Quits Rate” in the box and add the series with the copyright symbol. Finally, click the “Format” button on the menu and below Line 2 select the option to change the y-axis position to the right. Bottom graph: Repeat these steps, but use DHI-DFH Mean Vacancy Duration and DHI-DFH Index of Recruiting Intensity per Vacancy.

Suggested by Maximiliano Dvorkin and Hannah Shell.


The recent decline in immigration

New insights from the Research Division of the St. Louis Fed

The FRED Blog has discussed long trends and unexpected changes in the labor market in relation to the COVID-19 pandemic. Today, we focus on a foreseeable change in labor market conditions: the reduction in the size of the labor force due to locked-down border crossings and constrained immigration.

The FRED graph above shows data from the US Bureau of Labor Statistics about the number of foreign-born employed persons. The data are available since January 2007, and we have added a customized dashed line (in red) to indicate the trend in those figures between 2009 and the time of this writing. After the Great Recession, the steady growth in the number of employed persons born outside of the US was dramatically interrupted by the COVID-19 pandemic. It took the better part of three years for that segment of the labor force to bounce back to its pre-pandemic trend of growth. Did the missing workers from immigration restrictions result in long-lasting tight labor market conditions?

Recent research from Hannah Rubinton and Cassie Marks at the St Louis Fed finds some evidence that the immigration restrictions are unlikely to be the underlying cause of continuing labor market tightness. That can be explained by the fact that the number of missing workers from constrained immigration is  relatively small compared with the size of the overall employed population. A similar conclusion is reached when examining the relationship between labor market tightness and missing workers across industries and states. Only in the case of the food services industry did immigration restrictions noticeably increase labor market tightness.

For more about this and other research, visit the website of the Research Division of the Federal Reserve Bank of St Louis, which offers an array of economic analysis and expertise provided by our staff.

How this graph wase created: Search FRED for and select “Employment Level – Foreign Born.” From the “Edit Graph” panel, use the “Add Line” tab to “Create a user-defined line.” Adjust the “Value start” to “20000.” Last, use the “Format” tab to change the style for “Line 2: User-defined Line” to “Dashed.”

Suggested by Diego Mendez-Carbajo.

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