Definition
The workforce or labour force is the labour pool in employment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic region like a city, state, or country. Within a company, its value can be labelled as its “Workforce in Place”. The workforce of a country includes both the employed and the unemployed. The labour force participation rate, LFPR, is the ratio between the labour force and the overall size of their cohort. The term generally excludes the employers or management, and can imply those involved in manual labour. It may also mean all those who are available for work.
Participation Rate
What is the ‘Participation Rate’
The participation rate is a measure of the active portion of an economy’s labor force. It refers to the number of people who are either employed or are actively looking for work. During an economic recession, many workers often get discouraged and stop looking for employment, resulting in a decrease in the participation rate.
Explaining ‘Participation Rate’
Significance
It is necessary to analyze the participation rate in conjunction with the unemployment rate because people classified as unemployed according to the unemployment rate might not be active participants of the work force. When looking at the unemployment rate alone, the interpretation can be made that a higher number of people are not earning income, and are therefore not active contributors to the economy. However, these people may not be working due to choice and therefore could still be active contributors to the economy. They could be either retirees spending their savings, or students increasing their skills and their future income potential. The participation rate and unemployment data should be observed in tandem to better understand an economy’s overall employment status.
Structural Changes to Participation Rate
From 2006 to 2016, the U.S. civilian labor force participation rate has hovered in the 62 to 67 range, with a fairly consistent decrease in the participation rate since 2009. The decline in the participation rate has been attributed to structural changes and not the overall health of the economy. This structural change in the amount of people actively seeking work has occured due to retiring baby boomers, a decline in working women, and more people deciding to attend college.
Further Reading
- Explanations for the Low Participation Rate in the Formal Credit Market by Rural Households in the Poor Areas [J] – en.cnki.com.cn [PDF]
- Stock Market Participation, Participation Rate and Determinants [J] – en.cnki.com.cn [PDF]
- The recent decline in the labor force participation rate and its implications for potential labor supply – muse.jhu.edu [PDF]
- Financial literacy and pension plan participation in Italy – papers.ssrn.com [PDF]
- On Chinas Labor Force Participation Rate During the Economic Transition Period [J] – en.cnki.com.cn [PDF]
- Beyond the square root: Evidence for logarithmic dependence of market impact on size and participation rate – www.worldscientific.com [PDF]
- Explaining the decline in the US labor force participation rate – www.questia.com [PDF]
- The Response of the Labor Force Participation Rate to an Epidemic: Evidence from a Cross-Country Analysis – www.tandfonline.com [PDF]
- Unemployment and labour force participation in Japan – www.tandfonline.com [PDF]
