Labor Force Participation Rate

Categories: Econ, Metrics

The labor force participation rate, in short, is the percentage of people who are either working or looking for work compared to the total civilian population.

The nitty gritty details are important though. The “labor force” doesn’t include kiddos, people who can’t work from disability, and people who gave up looking for work (they’re called “discouraged workers”...they’re probably even more discouraged now that they’re not even included in the labor force participation rate). Also, the total civilian population: "civilian" means no Armed Forces folk count, nor do people in prison or mental hospitals.

So if you’re thinking the labor force participation rate is just how many people are working, you'd be wrong. It’s more like...how many people are either working or looking for work compared to people who can work. The Bureau of Labor Statistics reports the labor force participation rate monthly in their Jobs Report. Nothing to do with the founder of Apple.

Related or Semi-related Video

Econ: What is Outside the Labor Force?3 Views

00:00

And finance Allah Shmoop what is outside the labor force

00:07

Well how do you know if you're in the labor

00:10

force That might feel like you're working hard But well

00:13

that's not the real test Working hard at homework for

00:16

school doesn't get you paid At least not right now

00:19

Taking care of your kids Well it doesn't get you

00:21

paid Actually Probably cost you money taking care of your

00:24

own lawn We'll know that doesn't get you paid either

00:27

So what's the standard Well first let's define the term

00:30

What is the labor force Oh uh different type of

00:37

labor force The economic labor force is made up of

00:40

all the people in the economy who are looking to

00:42

sell their labour in the open market Seems straightforward enough

00:46

right There are people who are employed like people working

00:49

in factories or in offices or all sorts of other

00:54

places All right well then there are people who aren't

00:56

employed like these people This guy you know them well

01:01

then there's the gray area This guy not so sure

01:05

He's got a definite task He's working for an organization

01:08

He's gotta trudge through the snow all day but well

01:11

he's not collecting wages As far as we know If

01:13

you get up every morning and do something that gets

01:16

you paid then you're counted as being employed in the

01:20

labor force The key part is that you're getting paid

01:23

your trading your labor on the open market for cash

01:25

Ola if you spend all day sitting in the basement

01:27

drinking Mountain Dew and watching reruns of Law and Order

01:30

s V U You know collecting unemployment checks and you

01:34

are officially unemployed Yeah Shocking So all of this is

01:37

true but it's a bit more complicated in real life

01:39

There are actually three categories of people when it comes

01:42

to the labor market the employed the unemployed and those

01:46

outside of the labor force Yeah right Wait What does

01:49

that look like Pronounced poodle If this is the big

01:52

term that confuses million's or at least one hundred thirty

01:55

four people who report economic data and follow it and

01:58

actually know what they're reading right Well this group represents

02:00

the invisible part of the labor market The lives people

02:03

don't talk about them all that much almost like they

02:06

don't want to admit that they exist a lot like

02:09

you know these guys you don't want to run into

02:11

them in a dark alley But the outside the labor

02:13

force people actually represent now a sizable portion of the

02:17

US population and it's an important concept Keep in mind

02:20

if you're really gonna understand Ky e con stats especially

02:23

the unemployment rate and what it actually means that any

02:26

you know depth because the data's pants are on fire

02:29

so often well the unemployment rate is royalty In the

02:33

world of economic statistics you could say it's the king

02:35

of stats With GDP being the queen all other staffs

02:39

bow before it Politicians love to quote the unemployment rate

02:42

Ah high rate means the economy stinks and everyone in

02:45

Washington should be fired and get replaced A low rate

02:48

means everything is going great and the bureaucrats and politicians

02:52

get keep living off our tax dollars But there's a

02:55

missing piece The outside the labor force peace It has

02:57

to do with how the word unemployed is defined to

03:01

be officially unemployed that is included in the unemployment rate

03:05

number You need to be looking for a job actively

03:08

So if this guy's happy living off his parents playing

03:11

a fortnight all day not bothering to look for a

03:14

job Well he wouldn't qualify He wouldn't count in the

03:16

numbers He'd be ignored The unemployment rate isn't calculated by

03:20

dividing the number of people without jobs by the total

03:23

number of people in the country that be the denominator

03:26

there Instead the number gets divided by the number of

03:29

people who want a job Not all the people just

03:32

the people who want a job But there are plenty

03:35

of people who are perfectly content with not having a

03:37

job at all And and not just this guy There

03:40

are children and college students There are housewives and house

03:44

husbands too You don't forget them Well there are retirees

03:47

There are lottery winners There are jet setting Harris is

03:50

There are grifters There are beach bums drug dealers and

03:53

busking street mimes and someone so back to our three

03:57

groups Well first we've got people who have jobs and

03:59

people without jobs who want to get a job These

04:01

folks are actively looking for work but haven't found anything

04:03

yet And yes our new favorite people people outside the

04:07

labor force loves the government defines this third group as

04:11

persons who are neither employed nor unemployed like not a

04:16

and not be Sounds like the answer to a Zen

04:18

riddle right Or maybe an ancient prophecy about the type

04:21

of hero who will eventually ride a mystical dragon But

04:24

luckily the Labor Department also includes with slightly more concrete

04:27

definition They say that this group includes people who are

04:30

neither working nor seeking work Yes a final recap employed 00:04:34.539 --> [endTime] unemployed but life Yeah winter is definitely coming

Find other enlightening terms in Shmoop Finance Genius Bar(f)