What Is the Labor Force Participation Rate?
The labor force participation rate is an estimate of an economy’s active workforce. The formula is the number of people ages 16 and older who are employed or actively seeking employment, divided by the total non-institutionalized, civilian working-age population.
In the 12 months ending Dec. 2021, the U.S. labor force participation rate ranged between a low of 61.4% and a high of 61.9% (which was the figure for both Nov. and Dec. 2021), according to the U.S. Bureau of Labor Statistics, which publishes the figures monthly.
From 2013 on, the monthly figures held steady in the vicinity of 63%, after a sharp decline in the wake of the Great Recession. However, in early 2020, the labor force participation rate fell markedly, dropping from 63.4% to 61.4% in the first half of the year, as a result of the COVID-19 pandemic. Its low point was reached in April 2020, when the rate sank to 60.2%.
- The labor force participation rate indicates the percentage of all people of working age who are employed or are actively seeking work.
- In conjunction with the unemployment numbers, it can offer some perspective into the state of the economy.
- Starting in 2013, the U.S. labor force participation rate held steady around 63% until the COVID-19 pandemic struck. It was 61.9% as of Dec. 2021.
- The rate varies over time based on social, demographic, and economic trends.
- Global labor force participation has shown a steady decline since 1990.
Understanding the Labor Force Participation Rate
The labor force participation rate is an important metric to use when analyzing employment and unemployment data because it measures the number of people who are actively job-hunting as well as those who are currently employed. It omits institutionalized people (in prisons, nursing homes, or mental hospitals) and members of the military. It includes all other people age 16 or older and compares the proportion of those who are working or seeking work outside the home to those who are neither working nor seeking work outside the home.
Because it accounts for people who have given up looking for work, this may make the labor force participation rate a somewhat more reliable figure than the unemployment rate. The unemployment numbers do not take into account those who have given up looking for work.
Some economists argue that the labor force participation rate and unemployment data should be considered together to better understand an economy’s real employment status.
Trends in the Participation Rate
Over the long term, the labor force participation rate has changed based on economic, social, and demographic trends. It rose steadily through the second half of the 20th century, peaking at 67.3% in April 2000. In 2008, as the Great Recession hit, the participation rate entered several years of steep decline, stabilizing at around 63% by 2013.
The U.S. labor force participation rate in Dec. 2021, according to the Bureau of Labor Statistics.
Short- and long-term economic trends can influence the labor force participation rate. In the long run, industrialization and the accumulation of wealth can have an impact.
Industrialization tends to increase participation by creating employment opportunities. High levels of accumulated wealth can reduce participation because wealthier people simply have less need to work for a living.
In the short term, business cycles and unemployment rates influence the participation rate. During an economic recession, the labor force participation rate tends to fall because many laid-off workers become discouraged and give up looking for jobs. Economic policies such as heavy labor market regulation and generous social benefit programs may also tend to decrease labor force participation.
The trend in the women’s labor force participation rate largely parallels the long-term trends for the total population. The women’s labor force participation rate nearly doubled, from 32% to 60%, in the 50 years from 1948 to 1998. The women’s participation rate has since dropped as a result of the COVID-19 pandemic to 56.5% in Dec. 2021, from a trend rate of nearly 60% pre-pandemic.
Changes in the working-age population from generation to generation influence labor force participation as well. As large age cohorts enter retirement age, the labor force participation rate can fall.
The retirement of a steady stream of baby boomers has reduced labor force participation. According to the Federal Reserve, the share of prime-working-age people (25 to 54 years old) in the labor force peaked at 72% in 1995 and declined to 63.7% over the next 25 years. This roughly corresponds to some of the declining trends in labor force participation in the 21st century.
An increase in college attendance at the younger end of the age spectrum is another factor that reduces labor force participation. College enrollment by 18- to 24-year-olds increased from around 35% to 41% from 2000 to 2018. However, enrollment rates have dropped due to the pandemic, with undergraduate enrollment declining 7.8% from fall 2019 to fall 2021.
Global Labor Force Participation
Global labor force participation has shown a steady decline since 1990. According to the World Bank, the global labor force participation rate stood at 58.6% at the end of 2020, down from 62.4% in 2010.
As of 2020, the countries with the highest labor force participation rates (of 80% or higher) were Qatar, Madagascar, Zimbabwe, the Solomon Islands, Rwanda, United Arab Emirates, and Tanzania. The countries with the lowest labor force participation rates (of 40% or below) were Yemen, Jordan, Algeria, Moldova, and Tajikistan, plus the U.S. territory of Puerto Rico.
What Does the Labor Force Participation Rate Measure?
The labor force participation rate measures a country’s active workforce of people 16 and older. It takes into account people who have stopped looking for work but still want to work, unlike the unemployment rate.
What Affects the Labor Force Participation Rate?
Three major factors influence the rate: economic, demographic, and social. For instance, the recent retirement of baby boomers in great numbers has pushed the rate down, while the introduction of large numbers of women into the workforce in the second half of the 20th century increased the rate. In April 2020, after the COVID-19 pandemic struck the U.S., the rate went down by more than 3% compared to the beginning of that year.
How Does the U.S. Rate Compare With Those of Other Countries?
The most recent global data dates to 2020, and it shows the U.S. pretty much in the middle of the pack at 61%, two points ahead of the world rate of 59%. There were 87 countries with a higher rate, 91 countries with a lower rate, and eight countries with the same rate (including Germany, Ireland, and Russia). As of Dec. 2021, the U.S. rate as a round number stands at 62%.