What Is the Labor Force Participation Rate?
The labor force participation rate is a measure of an economy's active workforce. The formula for the number is the sum of all workers who are employed or actively seeking employment divided by the total working-age population.
The U.S. labor participation rate stood at 63.2% as of September 2019, according to the federal Bureau of Labor Statistics, which publishes updates monthly. The monthly figures have been in a narrow range from a bit under 63% to a bit over 66% for the past 10 years.
Understanding the Labor Force Participation Rate
The labor force participation rate is an important metric to use when analyzing unemployment data because it measures the number of people who are actively job-hunting as well as those who are currently employed. It omits people of working age who aren't seeking work or are unable to work, including full-time students and homemakers, the disabled, prisoners, and retirees.
- The labor force participation rate indicates the percentage of all people of working age who are employed or are actively seeking work.
- Used in conjunction with the unemployment numbers, it offers some perspective into the state of the economy.
- In the U.S., the labor participation rate is slowly declining due to a number of trends.
It also omits people who have given up looking for work. During an economic recession, the labor force participation rate will fall because many laid-off workers become discouraged and give up looking for jobs.
That may make the labor force participation rate a somewhat more reliable figure than the unemployment rate, which is often criticized for under-counting true joblessness as it fails to take into account those who have unwillingly dropped out of the workforce.
Some argue that the labor participation rate and unemployment data should be considered together to better understand an economy's real employment status. During a recession, a sudden drop in the participation rate is notable information. So is a sudden rise in the unemployment rate.
Why the Participation Rate Is Declining
As noted, the monthly figures on the labor participation rate have stayed between about 66% to about 63% for the past decade but the overall trend shows a slow but fairly consistent decline.
The U.S. labor force participation rate in September 2019, according to the Bureau of Labor Statistics.
This decline has been attributed to larger societal changes and not to the overall health of the economy. The retirement of a steady stream of baby boomers and an increase in college attendance at the younger end of the age spectrum are both factors that are removing people from the active workers total.
Global Labor Participation
The global numbers also have shown a steady decline since 1990. According to the World Bank, the global labor participation rate stood at 61.3% at the end of 2018, down from 62.9% a decade earlier.
The countries with the highest labor force participation rates at the end of 2018 included Zimbabwe, Rwanda, Tanzania, and Cambodia. The countries with the lowest include Samoa, Timor-Leste, and Yemen.