The participation rate and unemployment rate are economic metrics used to gauge the health of the U.S. job market. The key difference between the two indicators is the participation rate measures the percentage of Americans who are in the labor force, while the unemployment rate measures the percentage within the labor force that is currently without a job.

Participation Rate vs. Unemployment Rate

A citizen is classified as a member of the labor force if he has a job or is actively looking for a job. The participation rate is the percentage of adult Americans, excluding those incarcerated or otherwise institutionalized, who are members of the labor force. The 21st century has seen a steady decline in labor force participation. In 2000, it was 67%; by October 2017, it had fallen to 62.7%.

Many economists argue the labor force decline is the result of low-skilled workers losing their jobs to outsourcing or automation, having no success finding new employment and therefore dropping out of the labor force entirely. For this reason, they feel the participation rate is a more accurate measure of the state of the job market than the unemployment rate, which only considers those in the labor force. An unemployment rate of 5% means only 5 out of 100 workers in the labor force are without jobs, but it does not consider those unemployed workers who have given up looking altogether, even though they want to work.

Picture of the Job Market

The participation rate and unemployment rate taken together can provide a more comprehensive picture of the job market. A high participation rate combined with a low unemployment rate is a sure sign of a robust job market. During the late 1990s, the participation rate topped 65%, while the unemployment rate hovered below 5%. Most economists agree this was one of the best periods in modern history for American jobs. (For related reading, see: Three Problems With the U.S. Job Market.)