Labor Force Participation Rate

Labor Force Participation Rate

What is the labor force participation rate?

The participation rate is a measure of the active workforce of an economy. The number formula is the sum of all workers who are employed or actively seeking employment, divided by the total non-institutional civilian population of working age.

The labor participation rate in the United States was 63.3% in October 2019, according to the Federal Bureau of Labor Statistics, which publishes monthly updates. Monthly figures have hovered around 63% since 2020, after a sharp drop in the wake of the Great Recession.

Key points to remember

  • The labor force participation rate indicates the percentage of all people of working age who are working or actively looking for work.
  • Used in conjunction with unemployment figures, it provides some perspective on the state of the economy.
  • In the United States, the participation rate in work has remained around 63% since 2020, but it varies over time depending on social, demographic and economic trends.
  • Participation in the global workforce has declined steadily since 1990.

Understanding the labor force participation rate

The participation rate is an important measure to use when analyzing employment and unemployment data, as it measures the number of people actively looking for work as well as those who are currently employed. It omits institutionalized people (in prisons, nursing homes or psychiatric hospitals) and members of the military. It includes all other people of working age (16 or older) and compares the proportion of those who work or seek work outside the home with those who do not work or do not seek work outside fireplace.

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Rate of participation

Because it takes into account people who have given up looking for work, this can make the participation rate a little more reliable than the unemployment rate, which is often criticized for underestimating real unemployment because it does not take take into account those who have involuntarily left the labor market. Some argue that the participation rate and unemployment data should be examined together to better understand the real employment status of an economy.

Participation rate trends

As indicated above, the monthly participation rate has remained at 63% since 2020. In the long term, however, the participation rate has changed according to economic, social and demographic trends. Labor market participation in the United States increased steadily during the second half of the 20th century, peaking in the late 1990s. In 2008, as the Great Recession hit, the participation rate entered several years of sharp decline, stabilizing around 63% in 2020.

63.3%

The participation rate in the United States in October 2019, according to the Bureau of Labor Statistics.

Economic factors

Short-term and long-term economic trends can influence the participation rate. In the long term, industrialization and the accumulation of wealth can have an impact. Industrialization tends to increase participation by creating job opportunities in the labor markets that encourage people to leave the productive functions of households or to work in the informal economy. High levels of accumulated wealth can reduce participation because wealthier people simply have less need to work for a living.

In the short term, economic cycles and unemployment rates can influence the participation rate. During an economic recession, the participation rate tends to fall because many dismissed workers become discouraged and give up looking for work. Economic policies that increase unemployment rates, such as tight labor market regulation and generous welfare programs, will also tend to decrease labor force participation.

Social factors

The trend in the labor force participation rate of women is largely parallel to the long-term trends in the total population. As the social phenomenon of feminism and women’s liberation spread, women left their role as housewives and other housework to take up paid employment. The participation rate of women almost doubled in the 50 years between 1948 and 1998 (from 32% to 60%).

Demographic factors

Changes in the working-age population from one generation to the next also influence labor force participation. When large age cohorts enter retirement age, the participation rate may fall.

The retirement of a steady stream of baby boomers has reduced participation in the labor market. According to the Federal Reserve, the share of people of working age (between 25 and 54) in the labor force peaked at 72% in 1995 and fell to 64% over the next 20 years. This roughly corresponds to part of the downward trend in labor market participation in the 21st century.

Another factor that reduces participation in the workforce is an increase in college attendance at the younger end of the age group. Enrollment in college for 18-24 year olds increased from around 35% to over 40% between 2000 and 2020.

Global participation in work

Participation in the global labor force has declined steadily since 1990. According to the World Bank, the global labor participation rate was 61.4% at the end of 2020, compared to 63% a decade earlier.

The countries with the highest participation rates are Qatar, Madagascar, Zimbabwe, Rwanda and Tanzania. The weakest countries are Samoa, Timor-Leste and Yemen.

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