The Labor Force Participation Rate (LFPR) is the percentage of the population that are actively seeking or working.
The Key Takeaways
- Divide the total non-institutional civilian population by the number who are currently working or looking for work to find the formula.
- In January 2000, the peak rate of participation in the labor force was 67.3%.
- The rate has been lowered from its previous peak due to many factors including recessions, an aging population and other economic conditions.
Define and examples of the Labor Force Participation Ratio
The rate of participation in the labor force measures how much labor is available in an economy.
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The LFPR measures the number of people aged 16 and older who are employed or seeking employment, excluding those in institutions.
How to Calculate the Labor Force participation Rate
Divide the total population (civil non-institutionalized) by the total labor force.
What is the Labor Force Participation rate?
You must know how to calculate the formula correctly. The BLS is a federal agency which creates monthly Job Reports about the labor force.
The labor force includes all people who are classified as employed or unemployed.
The employed are civilians who have worked for at least one hour as paid employees in the past week. The employed also includes those who have worked at least 15 hours in an unpaid capacity for a family business or farm. Even if a worker holds two or more jobs, they are only counted one time.
This includes people who have jobs or businesses, but did not work during the week because of vacation, illness or strike, training or maternity leave or paternity leaves, or other family or personal reasons.
The Unemployed is a group of people aged 16 or older who are willing to work, and have actively looked for a job in the last four weeks. However, they are not employed. This includes those who were laid off, and are awaiting a new job.
Note:
The number of people receiving unemployment benefits or applying for unemployment benefits is not the same as the monthly unemployment rate.
The civilian noninstitutional populations refers to all Americans aged 16 and older who do not live in prisons, jails or mental hospitals.
The History of the Labor Force participation Rate
The U.S. participation rate in the labor force rose from 58.6% to a high of 67.3% by January 2000. The demographic changes that led to this dramatic rise were a combination of several factors. The first was that the large number of children born after World War II were old enough to join the workforce. A higher percentage of women were also seeking careers. In the 1990s more Latinos entered the workforce.
Three recessions in the following 20 years led to the permanent exodus of many workers after the peak of 2000. The recessions were accompanied by the retirement of Baby Boomers, as well as other demographic trends.
In April 2004, the LFPR was 65.9% due to the 2001 recession. The LFPR never reached its 2000 peak. In September 2015, the 2008 financial crisis pushed down the participation rate to 62.4%. In January 2020, the participation rate had only reached 63.4%.
As millions of people are laid off or furloughed, the 2020 recession will bring down the LFPR to 60.2% by April 2020. The LFPR was at its lowest since January 1973 when it was 60.0%. 3
You can find the seasonal adjusted rate of civilian labor force participation over the past two decades below. The graph also shows how the rate of participation in the civilian labor force has dropped dramatically since the financial crises and the slow recovery. The chart also shows the fall in April 2020, due to the pandemic.
Why has the Labor Force Participation rate declined?
Researchers found that even though the labor market recovered after the Great Recession, many workers never returned to their jobs, even when more jobs were available. Before the recession, demographic changes had an impact on the labor force. 4
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The Council of Economic Advisors says that half of the decline of labor force participation in America between 2007 and 2014 is due to the ageing of America. 5
Baby boomers leave the workforce as they reach retirement age. Some stay at home to take care of ailing parents, spouses, or children. Others claim disability. The baby boomers have had a significant impact on the rate of labor force participation because they make up such a large portion of the population. It may also never return to its previous levels, regardless of how strong the labor market is.
Men aged 25-54 leaving the labor force
A large number of men in working age have also left the workforce. In 1954, 98% men aged 25-54 were employed. In 2017, this had dropped to 88%. This is the lowest rate of men of prime age in any developed country.
Men without a degree are more affected by the decline. In 2000, the percentage of Americans with a college education rose from 33% to 84%. The wages of men without degrees are lower because there is less demand. Between 1973 and 2016, wages for this group of men fell by 15%. 6 Several manufacturing jobs, on which these men depended, have been outsourced or replaced with technology.
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Discouraged workers are people who have given up on looking for work, because they believe that there are no jobs available for them. 1 Other people become discouraged by a lack in education or training. The real rate is what counts discouraged workers, not the headline rate.
Job Vacancies in the Market
The Organisation for Economic Cooperation and Development reports that the demand for jobs requiring middle-skills has decreased. These jobs are those involving routine tasks which can be easily automated. The Covid-19 epidemic and the resulting economic slowdown affected different employees in different ways, but widened the skills, wage, and geographical divide. 7
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Structural Unemployment is when skills of potential workers do not match the needs of employers. Some older workers have been unable to return into the workforce despite improved job opportunities.
Opioid Dependency
Nearly half of men in prime age who are not employed take daily pain medications to treat chronic illnesses. Two thirds of these men are taking prescription medications, including opioid medication.
Yale professor Alan Krueger demonstrated how opioids affect the LFPR. He estimated that between 1999 and 2015, opioid dependence was responsible for 20% of the LFPR drop in these men.
Unhealthy Health and Disability
These states have a high number of people who are too sick or disabled to work. These states have many people who are unable to work due to illness or disability.
