Participation Rate

The participation rate refers to the total number of people or individuals who are currently employed or searching for a job. Participation Rate indicates the number of people interested in working, and the number of people, indicating the active economic workforce and country's unemployment, respectively.

A higher rate indicates more people are interested in working and is economically active. It is an important metric for understanding the country's employment and unemployment. However, this value is broken down into different groups as per age and is calculated as a percentage of such age groups.

The labor force participation rate can be defined as that part of the population in an economy who fall under the working age of 16 to 64 years. They may be already working or looking for work actively. People beyond that range of age or who are homemakers or students do not come under this category.

This metric is very important in any economy because it helps to understand whether the country is growing and proper and viable employment opportunities are created for people to earn their own living.

Creation of job opportunities also means there is a large scale industrialization taking place or development of investment areas that can be used to roll the money floating in the economy and channelize it is different useful areas. But that is only possible if people earn their living.

Thus just a high number of working age population is not enough. They should be able to participate in the economic development of the country. So, a high job participation rate is always desirable.

Participation Rate Formula= Employed People + Unemployed People / Working Age Non-Institutionalized Population

In the above formula of labor force participation rate, the numerator consists of all the unemployed and employed people who can work. The denominator contains the non-institutionalized population. It does not consider people who are not looking for any work. Therefore, the participation rate formula is an effort to find out how to improve the employment status of the economy.

Let us look at some examples of workforce participation rate to understand the concept.

Based on some research, the US non-institutionalized population in December 2015 calculated the labor force statistics. As a result, the following information was given:

Solution

• Employed persons: 140000 thousand
• Unemployed persons: 12000 thousand
• Non-institutionalised population: 250000 thousand

Calculation of Labour Force is as follows -

• =140000+12000
• =152000

Calculation can be done as follows,

• =(140000+12000)/250000

Example #2

Based on some research, the US non-institutionalized population in September 2014 calculates the labor force statistics. As a result, the following information was given:

Solution

• Employed persons: 240000 thousand
• Unemployed persons: 11000 thousand
• Non-institutionalised population: 450000 thousand

Calculation of Labour Force is as follows -

• =11000+240000
• =251000

Calculation can be done as follows,

• =(240000+11000)/450000

Let us understand the various uses and importance or the topic.

• It helps in understanding the economic status of the country.
• It helps in understanding the employment and unemployment comparison of the country.
• At the time of recession, the participation rate will be very less because, at that time, economic activities will be very low where there are losses for companies that provide less employment to the citizens, which leads to a low rate.

Let us look at the basic differences between the two topics given above.

• The former tells us the rate number of people who are currently capable of participating in the workforce of the country whereas the latter tells us the rate of unemployment in the country both expressed as a percentage.
• A high job participation rate is reasonable, whereas a low unemployment rate suits any economy.
• The former gives a sense of well being or development of the economy but the latter gives a sense of downfall or recession in the country.