Who Counts as Employed? Informal Work, Employment Status, and Labor Market Slack 
According to the Bureau of Labor Statistics (BLS), an individual is employed if she reported having worked for pay or profit in the week prior to the survey. The rise of informal or nonstandard work arrangements in recent years raises the question of whether the BLS estimates of employment capture informal work, because such work may be intermittent and may go unreported for a number of reasons. For related reasons, estimates of labor market slack based on BLS data—such as slack hours among those employed part-time for economic reasons—might not take into account the fact that some individuals engage in informal work in their spare time. Such adjustments could have important implications for forecasts of wage and price inflation because these forecasts depend in part on estimates of labor market slack. Using original survey data, this paper investigates the implications of informal work for the measurement of employment status and labor market slack and considers whether the official BLS estimates may underestimate the U.S. labor force participation rate.
Key Findings
- Based on a sample of individuals 21 years of age and older who are not retired, 37 percent of survey respondents participate in paid informal work (not including survey work). Excluding those engaged exclusively in renting and selling activities, 20 percent of the respondents engage in informal work.
- Among individuals classified by the BLS as employed part-time, the total amount of informal work performed represents an estimated 403,174 full-time job equivalents (FTEs). Among those classified as employed part-time for economic reasons, informal work represents 320,992 FTEs.
- If all informal workers were classified as employed, as of 2015 the employment-to-population ratio would have been 2.5 percentage points higher and the labor force participation rate would have been just over 2 percentage points higher.
- If informal workers with at least 20 informal work hours 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.
- Among informal participants who experienced a job loss or other economic loss during or after the Great Recession, 40 percent report engaging in informal work out of economic necessity, and 8.5 percent of all informal workers report that they would like to have a formal job. However, about 70 percent of informal work hours offer wages that are similar to or higher than the same individual's formal wage.
Exhibits
Implications
The authors' findings suggest that informal work participation complicates the official U.S. measurement of employment status. In particular, a significant share of those who report that they are currently engaged in informal work also report separately that they performed no work for pay or profit in the previous week. In light of such potential underreporting of informal work, the BLS's official labor force participation rate might be too low by an economically meaningful (if modest) margin, and the share of employed workers with full-time hours is also likely to be higher than is indicated by the official employment statistics. Because informal work may be intermittent by nature, one potential remedy is for the BLS employment surveys to ask individuals about their work activities in the previous month in addition to asking about paid activities undertaken during the previous week. Moreover, it may be beneficial to explicitly inform respondents that in answering the BLS survey questions they should consider all kinds of paid work, whether or not the income was earned from a formal job. The authors' findings also suggest that, to the extent that informal work represents labor market slack, such slack is concentrated among part-time workers, and especially among those who are employed part-time for economic reasons.