The labor participation rate definition is important, since it's often confused with the unemployment rate. The participation rate measures the number of people who are either actively working or looking for work. To determine the rate, divide the participation rate by the population.
Any economy relies on labor to survive. The higher the employment rate, the greater the number of people earning money and contributing to the economy. When unemployment rates skyrocket, spending goes down, which affects everything from local shops and restaurants to the housing market. One measure of employment activity is the labor force participation rate, which tracks the percentage of people who are either working or actively looking for work in a given job market.
TL;DR (Too Long; Didn't Read)
To calculate the labor force participation rate, divide the current labor force in an area by the population of that same area.
Labor Force Participation Rate Formula
Often when you hear about employment activity, it relates to the number of people actually working. To counter this, the government and news media will track the unemployment rate, which is the number of unemployed people who have actively sought work within the past four weeks. However, this doesn’t count the many people who are choosing not to participate in the job market, perhaps through retirement or a decision to be a stay-at-home parent.
The labor force participation rate aims to get a better picture of the rate of people actively engaged in the workforce. It only measures those above the age of 16 and eliminates retirees and others who choose not to work. The formula for the labor force participation rate is LFPR = LF / P. Put simply, it’s the total labor force divided by the entire population.
Determining the Rate
Now that you know the labor participation rate definition and the formula, you’ll need to gather the information to determine the current rate. The hardest part of this will be gathering data on the current labor force. The government collects and displays this information on a national level through the Bureau of Labor Statistics website, but you may want to get the data for a smaller area, such as your own city or county.
To determine the exact size of your current labor force, you’ll need data on the number of people who are actively working or looking for work in the area. You’ll need to include those who are self-employed, working part time or serving in a consultant role, since they’re all actively participating in the workforce.
Comparing to Unemployment
When trying to determine the labor force participation rate, it can be tempting to simply assume it’s the opposite of the unemployment rate, but that isn’t entirely true. There is a big gap between the labor participation rate and the unemployment rate since the unemployment rate measures those who are currently without a job.
The participation rate gives a better overall picture of the economy. From 2000 to 2017, the U.S. labor force participation rate fell from 67 percent to 62.7 percent, for instance, and many economists feel that outsourcing and automation are to blame. The unemployment rate doesn’t count the many workers who could not find work and gave up, whereas the labor force participation rate detects only those who are either working or looking for work.
- OcusFocus/iStock/Getty Images