Labor Force Participation Rate

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 noninstitutionalized, civilian working-age population.

The U.S. labor participation rate stood at 61.4% as of February 2021, according to the federal Bureau of Labor Statistics (BLS), which publishes updates monthly. The monthly figures have hovered around 63% since 2013, after a sharp decline in the wake of the Great Recession. In August 2020, there were 13.6 million unemployed, up 7.6 million from the 6 million in August 2019.

Note that as a result of the COVID-19 pandemic, the labor force participation rate initially fell markedly in early 2020, from 63% to the 61.4% level as indicated above. The pandemic’s effect on the U.S. economy ended up discouraging workers from seeking employment in early 2020, as many businesses shut down and unemployment levels were high.

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 hospitals) and members of the military. It includes all other people of working age (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, which is often criticized for undercounting 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.

Trends in the Participation Rate

As noted earlier, the monthly figures on the labor participation rate have stayed at about 63% since 2013. Over the long term, however, the participation rate has changed based on economic, social, and demographic trends. Labor force participation in the U.S. rose steadily through 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 steep decline, stabilizing at around 63% by 2013.

As a result of the COVID-19 pandemic, there was a spate of widespread unemployment in the spring and summer of 2020 that resulted in many discouraged job seekers no longer actively seeking employment and a drop in the participation rate from the post-Great Recession norm of around 63%.

The U.S. labor force participation rate in February 2021, according to the Bureau of Labor Statistics.

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 in labor markets that attract people to leave household production roles or employment 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, business cycles and unemployment rates can 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 that increase unemployment rates, such as heavy labor market regulation and generous social benefit programs, will also tend to decrease labor force participation.

Social Factors

The trend in the women’s labor force participation rate largely parallels the long-term trends for the total population. As the social phenomenon of feminism and women’s liberation spread, women left their roles as homemakers and in other household production to take wage jobs and salaried jobs. The women’s labor force participation rate nearly doubled, from 32% to 60%, in the 50 years from 1948 to 1998. The women’s participation rate has since dropped as a result of the pandemic to 55.8% in February 2021, from a trend rate of near 60% pre-pandemic.

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 participation rate can fall.

The retirement of a steady stream of baby boomers has reduced labor force participation. 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 declined to 63.7% over the next 25 years. This roughly corresponds to some of the declining trend in labor force participation in the 21st century. 

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 has increased from around 35% to more than 40% from 2000 to 2017.

Global Labor Participation

Global labor force participation has shown a steady decline since 1990. According to The World Bank, the global labor participation rate stood at 58.6% at the end of 2020, down from 62.7% when the decade began.

As of 2020, the countries with the highest labor force participation rates include Qatar, Madagascar, Zimbabwe, Rwanda, Nepal, and Tanzania, and the countries with the lowest labor force participation rates include Yemen, Jordan, Algeria, and Tajikistan.