June 6, 2013

Impact of Military Size on The Labor Force Participation Rate

Did you know that the BLS excludes active military personnel when figuring the numbers for the labor force, employment and unemployment?   Well its true.   The BLS looks at the 'civilian noninstitutional population which is defined in the BLS glossary as : 

"Civilian noninstitutional population (Current Population Survey)
    Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces."

The unemployment rate and labor force participation rate are then figured as % of the civilian noninstitutional population.   Therefore the military isn't part of the picture at all.

I'd have to wonder how changes in the size of the military would impact the labor force participation rate.   We've had a couple wars going on so I would think we'd have a larger military lately.   Would an increased military reduce the labor force?   I would think so.   That might then actually reduce the labor force participation rate. 

In a hypothetical situation a large change in the military force might have big impacts on the labor force participation and unemployment rates.   Lets say we have a fictional island country with just 20 residents.   Of the 20  people we have : 15 people working jobs, 3 people who do not work for varying reasons and 2 people are unemployed.   Thats a labor force participation rate of 75% and an unemployment rate of 10%.   Now lets say that the island goes to war with the neighboring island over a dispute over fishing rights and 5 men are drafted.   Well now theres only 15 people in the 'civilian noninstitutional population'.   The 2 unemployed people get jobs and the 3 people who don't work still don't work and the other 10 stay in their jobs.  That means we'd have 0% unemployment and 80% labor force participation.    Of course thats just hypothetical to illustrate how military numbers might change things.    We could see this going on during WWII to some extent I'm sure. 

OK but what if we didn't exclude the military personnel from our labor force figures?    In my example above it would be a large swing between 80% labor force participation and 85% participation.  

Enough talk... lets look at the numbers.    First I get the number of military personnel from the Census.   And then we'll need to look at BLS labor figures.     I had to do a little math and take the labor figures for the population over 16 years old and then subtract the 16-17 group to get figures for the 18 and older group.

First of all I quickly realize that I was wrong about my assumption about the size of the military increasing.   In fact our military hasn't grown all that much in the past 10 years.    We had a significantly larger military back in 1990.   In 1990 we had 2.0 million personnel, 2000 it was 1.38M and 2010 it was 1.43M.     The percent of the population in the military has actually shrunk.

The percent of the population in the military :

1990 2000 2010
1.1% 0.7% 0.6%

This could shift the labor force.    Lets look at the labor force participation with and without the military included.   Normally the BLS does not include the military.   But what if the figures did include the military?

In the last couple decades the impact of the military would have only had 0.2% to 0.3% change in the labor force.   Thats not a big difference and it hasn't varied too much.    From 1990 to 2010 the labor force participation rate is down 1.1%.   If we had included the military then the rate would be down 1.2%.

Now lets look at how the unemployment rate would differ if we included the military in the labor pool.  

In the graphic they look almost identical.   But there is a small difference.   Lets look at the actual figures in table form :

1990 2000 2010
without  5.30% 3.73% 9.38%
with mil 5.22% 3.69% 9.29%

If we included the military personnel in our labor force then unemployment would differ just 0.09%.  Thats almost a 1/10th of a percent so its not insignificant but its certainly not a big difference.  

The fact of the matter is that the total military personnel is not a huge portion of our population and it hasn't varied all that much.   It hasn't had a significant impact on the labor force rate or the unemployment rate.    Of course if the military grew drastically then it would have a larger impact.


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