American indicators of labor market performance are participation and unemployment. The unemployment rate is the proportion of working-age people without jobs. However, the labor force participation rate estimates how many people of working age are actively searching for jobs. The BLS calculates these.
Unemployment Rate
The unemployment rate only counts job seekers. Part-time workers are included when we calculate unemployment rates. According to estimates, 5 out of 100 persons actively seeking work are unemployed.
Labor Force Participation Rate
Labor force participation might indicate economic activity. The formula is a non-institutionalized civilian working-age population divided by 16-year-olds employed or seeking employment. According to BLS monthly statistics, U.S. labor force participation varied from 62.2% to 62.8% in the 12 months ending Aug. 2023.
Monthly measurements remained around 63% during the Great Recession, but COVID-19 drove down the labor participation rate from 63.5% to 60.1% between January and June.
Factors That Affect Participation Rate
Being a member of the labor force is not something that happens in a vacuum. Several demographic, societal, and economic variables have an effect instead. Changes to these variables may cause an increase or decrease in labor force participation. These shifts occur rapidly or gradually. They may bring about changes in the long run or affect participation in the labor force soon.
Economic Factors
The labor force participation rate is susceptible to both short- and long-term economic changes. The effects of industrialization and economic growth may become apparent over extended periods. By providing more job options, industrialization tends to boost involvement. People with more money tend to be less involved since they don't have to work as hard to support themselves.
The unemployment rates and economic cycles have a short-term impact on the participation rate. The labor force participation rate often declines during economic downturns since many people who lose their jobs become disheartened and stop seeking employment. Heavy labor market regulation and large social welfare programs are two economic policies that could discourage people from working.
Social Factors
Current and future societal expectations could affect whoever is available to labor. The labor participation rate will rise or fall depending on whether groups are anticipated to work. For instance, if married men are expected to provide financially for their families while married women remain at home, it follows that women will no longer work after getting married or having children, decreasing the labor force participation rate. Some parents, regardless of gender, will choose to remain out of the workforce if it is expected that they should both be able to work.
The labor force participation rate might also be affected by expectations of schooling. Adults will begin joining the labor force between the ages of 17 and 19 if most youths study a skill or participate in the family company while growing up, and they are expected to start working right after high school.
However, more young people will continue their education beyond high school in nations, or demographic groupings where attending college is more frequent. They won't enter the workforce until their early to mid-twenties. Therefore, their involvement in the labor force will decrease.
Demographic Factors
Labor force participation is also affected by generational changes in the working-age population. There may be a decline in the labor force participation rate as big age groups reach retirement age. The baby boomer generation's retirements reduce job seekers. One of the largest groups is baby boomers. Due to fewer generations, baby boomers won't be replaced by as many young, energetic workers.
Trends in Participation Rate
Economic, social, and demographic developments have affected labor force participation. It rose steadily from the mid-20th century to 67.3% in April 2000. The participation rate plummeted during the Great Recession in 2008 and leveled out at 63% by 2013.
Long-term, women's labor force participation rate follows the population trend. Between 1948 and 1998, working-age women virtually doubled from 32% to 60%. This rate dropped from 57.9% in February 2020 to 54.6% in April 2020. The August 2023 rate was 57.7%.
Decline in Participation Rate
The Federal Reserve reports that prime working-age workers (25–54 years old) hit 72% in 1995 and have declined since. This aligns with tendencies toward lower labor force participation that have emerged this century. A lower labor participation rate has occurred for many causes.
The Great Recession
2007- 2009 was the time of the Great Recession that started, and the unemployment rate increased from to %. This decade witnessed a revival in the job market, but many people who had previously given up on working never returned to full-time work, even when opportunities were available. Long-term unemployment increased because those who were jobless for longer periods stayed out of the labor market, while overall unemployment went back to pre-recession levels.
Retirement
Baby boomers are the largest demographic in the world. Not enough young people will be around to replace them when they retire. Thus, the participation rate drops. As the Council of Economic Advisors indicates, one reason behind the reduction in labor force participation observed between 2007 and
College
Increasing the number of people attending college is another factor that reduces involvement with the work market. Also, it increased from 14.85% enrollment in colleges with four-year degree majors on having gone up to 21.01% by The year 2011. Until 2021, the enrollment rate continued to plummet, with estimates indicating that enrollment will increase to 19.57% in 2025.
