Labor Force Participation Rate - Explained
What is the Labor Force Participation Rate?
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Table of ContentsWhat is the Labor Force Participation Rate?How is the Labor Force Participation Rate Calculated?Significance of the Labor Force Participation RateStructural Changes to Participation RateAcademic Research on the Labor Participation Rate
What is the Labor Force Participation Rate?
The labor force participation rate (LFPR) measures the proportion of a countrys population that is active in the labor market. The rate examines the number of the working-age population that forms the active workforce of an economy. The section of a countrys working population that is measured by the labor force participation rate includes people who are employed and those seeking employment. The working-age population captured by this rate are individuals between the age bracket of 16-64. The labor force participation rate excludes individuals who are not actively working or looking for work, old people and housewives.
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How is the Labor Force Participation Rate Calculated?
When estimating the rate of unemployment in a country, the participation rate is important, this rate reveals the proportion of a country's population that are actively looking for employment and those interested in being part of a country's workforce. To calculate the labor force participation rate (LFPR), the following formula will be used; LFPR = Labor Force / Civilian Non-Institutionalized Population. In this formula, the labor force is made up of both employed and unemployed individuals. LFPR measures the number of a country's population that is available for work. As of 2019, the labor force participation rate in the United States was 63.3%.
Significance of the Labor Force Participation Rate
The labor force participation rate (LFPR) is an important metric that provides information that might not readily be seen in the unemployment rate. For instance, to determine the actual proportion of a population that is unemployed, looking at LFPR is crucial. This is because the rate considers the employed as active participants of the workforce who are still looking for employment. The employment rate might not provide this information, as the employed are regarded as people who earn no income, regardless of whether they are underage, old people, housewives or homemakers. There are certain economic factors that affect the participation rate, an example is recessionary periods. During recessions, the economy becomes worse, many people can be discouraged from seeking employment and thus reduces the proportion of people in the active workforce. There is often a decline in participation rate during recessions. It is therefore important that the unemployment rate should be considered in relation to the participation rate in order to have an accurate number of individuals who are actually not employed in an economy.
Structural Changes to Participation Rate
As of November 2019, the labor force participation rate was 63.2%, before 2019 however, there have been changes in the participation rate in the US from 2006 to 2018, the rate has been moving between the range of 62 to 67 percent. The decline in the participation rate in the late 2000s was attributed to structural changes. The global labor force participation rate is 61.7%. In the international space, there are countries that record the highest labor force participation rate, such countries include Cambodia, Rwanda, Tanzania, and Zimbabwe.
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