Which of the following would directly decrease the labor force participation rate?

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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 November 2022, the U.S. labor force participation rate ranged between a low of 61.9% and a high of 62.4%, according to the U.S. Bureau of Labor Statistics (BLS), which publishes the figures monthly. As of November 2022, it is 62.1%.

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 62.1% as of November 2022.
• 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.

Trends in the 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.

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.

The U.S. labor force participation rate of 62.1% in November 2022 included 56.5% participation for women and 68.0% participation from men.

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

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 has since dropped as a result of the COVID-19 pandemic to 54.6% in April 2020, from 57.9% in February 2020. It has increased since, sitting at 56.5% in November 2022.

Labor Force Participation Rate Formula

The formula for labor force participation is:

( Number Employed + Number Seeking Work ) × 100 Civilian Non-Institutional Population \begin{aligned}&\frac{ ( \text{Number Employed} + \text{Number Seeking Work} ) \times 100 }{ \text{Civilian Non-Institutional Population} } \\\end{aligned} ​Civilian Non-Institutional Population(Number Employed+Number Seeking Work)×100​​

This applies to all members of the population at age 16 or older. ( Number Employed + Number Seeking Work ) × 100 Civilian Non-Institutional Population \frac{ ( \text{Number Employed} + \text{Number Seeking Work} ) \times 100 }{ \text{Civilian Non-Institutional Population} } Civilian Non-Institutional Population(Number Employed+Number Seeking Work)×100​

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.

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 trends 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 increased from around 35% to 41% from 2000 to 2018; however, enrollment rates have dropped due to the pandemic, with undergraduate enrollment declining 7.8% from fall 2020 to fall 2021. It has continued to fall as of October 2022 but at a slower rate.

The national unemployment rate in the United States in November 2022 was 3.7%.

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 59% at the end of 2021, down from 62% in 2010.

The following table highlights the countries with the highest and lowest labor force participation rates as of 2021:

The U.S. territory of Puerto Rico also made the list, ranking among those with the lowest labor force participation rates at 40%.

What Does the Labor Force Participation Rate Measure?

The labor force participation rate measures a country’s active workforce of people 16 and older. It takes into account people who have stopped looking for work but still want to work, unlike the unemployment rate.

What Affects the Labor Force Participation Rate?

Three major factors influence the rate: economic, demographic, and social. For instance, the recent retirement of baby boomers in great numbers has pushed the rate down, while the introduction of large numbers of women into the workforce in the second half of the 20th century increased the rate. In April 2020, after the COVID-19 pandemic struck the U.S., the rate went down by more than 3% compared to the beginning of that year.

How Does the U.S. Rate Compare With Those of Other Countries?

According to the World Bank's most recent data from 2021, the U.S. falls in the middle of the pack at 61%, two points ahead of the world rate of 59%. There were seven countries with the same rate as the U.S. (including Germany, Austria, and Russia). As of November 2022, the U.S. rate stands at 62.1%.

How Is the Labor Force Participation Rate Measured?

The labor force participation rate is measured by the Bureau of Labor Statistics, based on a monthly household survey by the U.S. Census Bureau. This survey asks respondents about their age and whether they are employed or looking for work. On that basis, the government can estimate the labor force participation rate.

Why Is the Labor Force Participation Rate Declining?

The participation rate has steadily declined since the late 1990s, largely due to the retirement of baby boomers and other demographic changes. In 2020, there was a sharp drop in labor participation due to the Covid-19 pandemic, which shuttered many businesses and forced many vulnerable people to leave the workforce.

The Bottom Line

The labor force participation rate measures the percentage of adults who are either employed or actively looking for a job. It does not include those in the military, prisons, or otherwise outside of the ordinary labor market. It also accounts for the people who are not seeking work, making it a more reliable statistic than the regular unemployment rate.

What would cause the labor force participation rate to decrease?

What are 5 factors that affect the labor force?

Which of the following individuals would not be included in the labor force participation rate?

Which of the following would decrease the unemployment rate?