Mike has a keen interest in the effects of politics in our culture. He has a unique way of simplifying complex concepts.
Have you ever noticed that even though presidents quote that the unemployment rate is low, there seems to always be many people who are out of work? That's because there is a discrepancy between those who are employed and those who are no longer participating in the labor workforce. This article will take you on a step-by-step journey of how the unemployment rate and the labor force participation rate are calculated. The equations are quite simple. So don't be concerned; this is not rocket science.
Unemployment Rate vs. Labor Participation Rate
In general, The unemployment rate is a metric that is used to measure the number of people who are unemployed in the labor force.
The labor force participation rate is a measure of the number of people who are both employed and unemployed in the labor force.
Notice that both metrics use the parameter called labor force.
What Is the Labor Force?
As shown in the figure below, the labor force is made up of the following:
- The number of people at least 16 years of age who are employed.
- The number of people at least 16 years of age who are unemployed and are still looking for work within the last four weeks, excluding those who are no longer seeking work, retirees, and military personnel.
The unemployment rate is calculated by dividing the number of people employed by the labor force, then multiplying by 100 to derive the percentage.
The Labor Force Participation Rate is calculated by dividing the Labor Force by the total adult population that is at least 16 years of age and multiplying the results by 100 to yield the percentage.
Calculating the Unemployment Rate of a Sample Country
To illustrate how the unemployment rate is calculated, the below figure uses a sample country made up of the following:
- Total Adult Population = 1,500
- 800 have jobs
- 200 are looking for jobs
- 200 are retired
- 200 have given up looking for jobs
As shown in the figure below:
The 800 who have jobs is divided by the labor force of 800 who have jobs, including the 200 who are looking for jobs. The result is a 20% unemployment rate.
Calculating the Labor Force Participation Rate (LFPR)
Using the same sample country, we can calculate the LFPR. To do this, we divide the Labor Force by the number of the adult population who are greater than 16 years of age. In this case, the labor force is the same. It is made up of 800 who have jobs, including 200 who are looking for jobs. Now, it is divided by the 1500 adults who are greater than 16 years of age. The result is multiplied by 100 to yield a percentage of 66.67 percent who are actively participating in the labor workforce.
Now it should become apparent that the unemployment rate of the sample country was 20 percent, but the labor workforce participation rate is 66.67 percent.
That means the employment rate is at 80%, but out of the total adult workforce, there is a 33.33 percent deficit of those who are not participating.
Do you see the difference? Presidents like to quote the unemployment rate instead of the Labor Force Participation rate, even though both are available from the Bureau of Labor Statistics.
Calculating the Current Labor Force Participation Rate (LFPR)
The following description is based on data from the Bureau of Labor Statistics and was current at the time this article was created. All numbers are in millions. According to the bureau, there are 243 million people in the labor force who are at least 16 years old. 157 million have jobs and 6 million are looking for jobs. To calculate the Labor Force Participation Rate, add the 157 million who have jobs to 6 million who are looking for jobs. That equals 163 million, the number in the labor force; dividing that by the 243 million adults in the working population yields a labor force participation rate of 67%.
If the unemployment rate is at 3.2%, that means that 96.8% are working. However, the total adult population of the labor force is at 67%. That means that 33% of the adult working force is not participating in the labor market.
- If the number of retirees increases, the LFPR decreases.
- If the number of people who have dropped out of the labor force increases, the LFPR decreases.
- If the unemployment rate decreases, the LFPR decreases.
Bureau of Labor Statistics Current Statistics
Below are two charts from the Bureau of Labor Statistics. The first chart shows that, as of July 2019, the unemployment rate was 3.7%. The second chart shows that, as of July 2019, the Labor Force Participation rate was 63%.
That indicates that even though the unemployment rate was low, only 63% of the adult working population were participating in the labor market. That means 37% were not participating in the labor market.
Additional Labor Statistics Charts
If you are interested, here are additional Labor Statistics Charts from the BLS.
Questions & Answers
Question: If people who are not in the labor force, enter the labor force by seeking employment, why does the unemployment rate not increase?
Answer: The labor force participation rate keeps track of those who are seeking employment in the last four weeks. It is updated the first of each month. I'm not sure I understand your question. If people enter the labor force, the unemployment rate should decrease, not increase as you are asking in your question.
© 2019 Mike Russo
Mike Russo (author) from Placentia California on February 02, 2020:
Thanks JC, I hope it was helpful.
JC Scull from Gainesville, Florida on February 02, 2020:
Hello Mike...great article.
Mike Russo (author) from Placentia California on August 07, 2019:
Ken: I'm sorry you feel that way about ACA, but the alternative is to privatize health care. The health care industry and insurance companies would love to see that, especially with very liberal regulations that would be in their favor.
They would raise premiums and do away with pre-existing conditions. The insurance companies have inserted themselves in the middle of this whole managed health care system. Kaiser Permanete has a huge complex in our area. They are not only an insurance company, but also a huge health care service provider.
I agree ACA is not perfect. It needs adjustments and so does medicare, but Trump has a hard-on for anything Obama has done. He seems hell-bent on removing all of his policies including ACA, and background checks for the mental ill when purchasing weapons.
The GOP has tried innumerable times to come up with another plan, but it is just plain empty rhetoric. The same goes for Trump. By the way as far as I know, Obama was given bad information about, "If you like your doctor, you get to keep him/her."
I have to admit, there are those who get caught up in the lower end of the system and have to pay much more for their deductibles including my daughter and son-in-law...thanks for dropping by.
Ken Burgess from Florida on August 07, 2019:
The ACA (Obamacare) was a disaster, and anyone who had to go to it for insurance knows this.
When I moved from NY to FL years ago we were stuck participating in the ACA, it was total robbery, we had to pay for an insurance that covered essentially nothing until we burned through a very large deductible.
The choice was to either throw away our money on that insurance, and at least have coverage should one of us get hit by a bus, or pay the fine/tax for not having insurance at the end of the year.
Costs were rising as much as 100% a year in some states.
Those few million that had insurance where before they could not get any, could have been serviced by tweaking Medicare and broadening who it covers.
The ACA was designed ultimately to benefit the large Insurance companies, by helping them put out of business the smaller competition and giving them a monopoly, and helping the Pharma and Medical industries by allowing them to increase prices for their products which the government by making their competition and alternate sources of medicine practically illegal within America and for any American who participated in the ACA.
The ACA was created by some of the most corrupt individuals in D.C. to further their agendas, not to help the American people.
The promises that working families would save thousands of dollars on their insurance bills, and that they could keep their same doctors/networks, etc. proved to be false, and when you tell such a lie, that harms tens of millions of Americans, no amount of media propaganda or government reports are going convince those who were caused extra hardship otherwise.
Universal Healthcare in America is economically impossible, they cannot implement a Canadian or Sweden like program here, those nations have much smaller populations where the percentage of people working was well above 50% when those health programs were instituted and funded.
Our nation, America, doesn't have half its population in the workforce, it has 20% of its population in the workforce, which is why we are constantly running trillions of dollars deficit just to maintain the facade of the social supports and civilization we currently enjoy... we are running the country on 'pipe dreams', there is no great swath of the population that can be taxed to support such a change to healthcare.
They would have to tear apart the entire economic system, how everything currently operates, from Wall St. to Social Security, once everything has been destroyed, America as we understand it has been done away with, the Constitution scrapped and individual freedoms and rights to property done away with... then we could probably institute a new system where everyone gets healthcare, however pathetic that care may become.
Its a crappy system we have, made worse by our generous nature of allowing in millions of new 'migrants' every year. Countries like China and Japan which don't allow migrants, that don't take in refugees or asylum seekers, can contain and maintain their systems... they have stability. Even Europe, until just a few years ago, developed its systems on a stagnant and closed population model, now that they are taking in millions of migrants, their systems are being overburdened and incapable of continuing to support their populations as they once did... they will build up debt as we have done to try and continue their existence as it is, until the economy eventually fails.
Reality always conflicts with good intentions and good ideas... and politicians always take those good intentions and good ideas and find a way of corrupting them, especially in D.C.
Mike Russo (author) from Placentia California on August 06, 2019:
Ken; Thanks for your comments. I believe that is why Obama had the individual mandate Obama care. It was more like a group insurance, but Trump removed it.
Now we have candidates running for office that have all these great plans for universal health care, but I don't know if they analyzed what the taxes would be to implement it.
Ken Burgess from Florida on August 06, 2019:
This is a great topic, the article lays out the information well.
And this ties in to so many other things.
Our population has gone up, but the number of people working has gone down.
The definition of full time work has gone from 40 hours to 32, benefits have disappeared from many fields, etc.
How do these numbers factor in to things like Universal Healthcare?
Countries that have Universal Healthcare have substantial taxes to support it, and a much higher work percentage among the adult population than America.
America has 63 out of 323 million working ... Canada has 19 out of 36 million working... holy cow! The difference is staggering!
Canada has better than 50% employment to its population!
America has a 20% employment rate to its population!
You aren't going to be funding any National Healthcare Services with those ratios... the nation is going broke running what it does have as it is.
Mike Russo (author) from Placentia California on August 05, 2019:
Nancy: If you are working and are over 16 years of age, then you are employed and are part of the Labor Force Participation Rate. The Bureau of Labor Statistics may have a statistics for self-employed people as well. Thanks for your comment.
Nancy Yager from Hamburg, New York on August 05, 2019:
How about people like myself, who own their own business? Where do they fall in these statistics?