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 May 2023, the U.S.labor force participation rate ranged between a low of 62.1% and a high of 62.6%, according to the U.S.
Bureau of Labor Statistics (BLS), which publishes the figures monthly.As of June 2023, it is 62.6%.
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 dramatically, 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%.
Key Takeaways
– 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 at around 63% until the COVID-19 pandemic struck.It was 62.6% as of May 2023.
– The rate varies over time based on social, demographic, and economic trends.
– Global labor force participation has shown a steady decline since 1990.
Participation Rate
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 health facilities) and members of the military.
It includes all other people aged 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 in an effort to better understand an economy’s real employment status.
Labor Force Participation Rate Formula
The formula for labor force participation is:
Civilian Non-Institutional Population(Number Employed+Number Seeking Work)×100
This applies to all members of the population at age 16 or older.Civilian Non-Institutional Population(Number Employed+Number Seeking Work)×100
Factors That Affect Participation Rate
Labor force participation does not exist in a vacuum.Instead, it is impacted by a variety of social, economic, and demographic factors.As these factors change, then labor force participation might go up or down.
These changes can happen quickly or slowly.They might have a short-term impact on labor force participation, or they might create long-term change.
Economic Factors
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.
Social Factors
Social expectations and changes to those expectations can impact who is available to participate in the workforce.
As different groups are expected to work or not, the labor force participation rate will go up or down.
For example, if married men are considered responsible for supporting their families, while married women stay home, then women will stop working once married or after having children, which lowers the labor force participation rate.If the expectation is that both parents should be able to work, however, then some parents of either gender will leave the workforce, while others will stay.
Expectations for education can also impact the labor force participation rate.If the majority of young people learn a trade or a family business as they are growing up, then are expected to work immediately after finishing a high school education, then adults will start entering the workforce between ages 17 and 19.In countries or demographic groups where attending college is more common, though, more young adults will continue their education after high school.Labor force participation will go down because they won’t join the workforce until their early or mid-twenties.
Demographic Factors
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.
For example, the retirement of
a steady stream of baby boomers has reduced labor force participation.
Baby boomers are one of the largest demographic blocks in the population.Since generations after the baby boomers are smaller, they will not be replaced by as many active, younger workers when they retire.
Trends in Participation Rate
The labor force participation rate has changed based on economic, social, and
demographic trends over the long term.It rose steadily through the second half of the 20th century, peaking at 67.3% in April 2000.As the Great Recession hit in 2008, the participation rate entered several years of steep decline, stabilizing at around 63% by 2013.
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.This rate dropped to 54.6% in April 2020 from 57.9% in Feb.
2020.As of June 2023, it sits at 57.3%.
The U.S.labor force participation rate of 62.6% in June 2023 included 57.3% participation for women and 68.1% participation from men.
Why the Participation Rate Has Declined
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 has declined since then.This roughly corresponds to some of the declining trends in labor force participation in the 21st century.There are a number of reasons that the labor force participation rate has declined.
– The Great Recession: During the Great Recession from 2007 to 2009, unemployment rose from 5% to 10%.
In the decade that followed, the labor market recovered.But many workers who had left the workforce never returned to full-time work, even after jobs were available.Though overall unemployment returned to pre-recession levels, rates of long-term unemployment increased as workers who had lost jobs stayed out of the labor force for longer periods of time.
– COVID-19: There was another sharp drop in labor participation in early 2020, as the COVID-19 pandemic shut down the U.S.
economy.Many vulnerable workers were unable or unwilling to remain in face-to-face jobs, while others left their jobs to take care of family members at home.Due to caregiving expectations, women left the workforce at higher rates than men did.
– Retirement: Baby boomers are the largest segment of the population.
As they reach retirement age and leave the labor force, the participation rate goes down, since there aren’t enough younger workers to replace them.From 2007 to 2014, up to half the decline in labor force participation was a result of the workforce aging, according to the Council of Economic Advisors.
– College: 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 dropped during the pandemic, with undergraduate enrollment declining 7.8% from fall 2020 to fall 2021.It has been growing in the spring of 2023.
The national unemployment rate in the United States in June 2023 was 3.6%.
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 60% at the end of 2022, down from 62% in 2010 and 65% in 1990.
The following table highlights the countries with the highest and lowest labor force participation rates as of 2022 (most recent data):
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