Labor Force Participation Ratio
The percentage of a total population between the ages of 16 and 64 who are currently employed or seeking employment. The Labor Force Participation Ratio is calculated by adding the number of employed and unemployed people and then dividing the sum by the civilian non-institutionalized population.
Labor Force Participation Ratio Details
To calculate the Labor Force Participation Ratio (LFPR) of a country, you need to add the number of employed and unemployed people and divide it by the Civilian Non-Institutionalized Population. The employed are the individuals who work 1+ hours per week being paid, or 15+ hours unpaid in a family business. The unemployed are defined as actively seeking a job for at least four weeks but still don't have one.
The Civilian Non-Institutionalized Population aggregates all people aged 16+, excluding people from the military or others currently in an institution (prison, mental hospitals, nursing homes, etc.). Homemakers, full-time students, and people older than 64 are not included in the Labor Force Participation Ratio. If the Labor Force Participation Ratio of a nation has been decreasing over the years, it can signify an aging population or crisis in the nation. Both should be seen as a sign of warning, as they can harm the country's future economy.
Nations with the highest Labor Force Participation Ratio tend to be among the most developed in the world. These countries have in common solid economies and a high number of people between the working ages of 16 and 64, with a lower number of people considered unemployed.
Real-World Example of Labor Force Participation Ratio
Let's take the United States Labor Force Participation Ratio as an example. In March 2021, the Labor Force Participation Ratio was 61.5% (statista.com). In 2019, the Labor Force Participation Ratio was 63.1% (statista.com). First of all, let's understand how to reach this number (61.5%), to then comprehend why it declined almost 2% in two years.
The United States has a population of 261 million (worldpopulationbalance.org/us_population), from which a little more than 100 million are not in the labor force. At the same time, 160 million (150 million employed and 9.7 million unemployed) comprise the labor force. Therefore, 61.5% (160.56 million Americans / 261 million people in total) are a part of the labor force. There are several reasons why the Labor Force Participation Ratio is decreasing; for instance, the US has been faced with recessions and financial crises in the past years. Most recently, a global health crisis has been affecting the number of jobs on the market.
Some other reasons why the percentage of the labor force is low are the rise of structural unemployment, which is a mismatch between the skill level of the unemployed and the jobs available in the market. The decline of middle-skilled jobs, which are jobs that require a high-school diploma but not a college or university degree, the increase of opioid dependency, chronic illnesses, and the escalation of the nation's aging population all affect the Labor Force Participation Ratio.