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WELFARE ECONOMICS: A branch of economics that studies efficiency and the overall well-being of society based on alternative allocations of scarce resources. Welfare economics extends the microeconomic analysis of indifference curves to society as a whole. It is concerned with broad efficiency questions and criteria (Pareto efficiency and Kaldor-Hicks efficiency) as well as more specific efficiency issues (market failures, externalities, public goods).

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LABOR FORCE PARTICIPATION RATE:

The proportion of the total noninstitutionalized civilian population 16 years of age and over that is in the civilian labor force. The labor force participation rate is essentially the ratio of the civilian labor force to the total noninstitutionalized civilian population 16 years of age and over. The data used to estimated the labor force participation rate is obtained along with other labor force data from the monthly Current Population Survey conducted by the Bureau of the Census for the Bureau of Labor Statistics. Labor force participation rates are also commonly calculated using data derived from the Census of the Population.
The labor force participation rate indicates the proportion of the available "working age" population that is willing and able to work and is either employed or actively seeking employment. It is found by dividing the labor force (total civilian labor force) by the population (total noninstitutionalized civilian population).

The Formula

The calculation of the labor force participation rate is officially given by this formula.

labor force
participation rate
=civilian
labor force
total noninstitutionalized
civilian population
x 100

While this "official" labor force participation rate is the most common participation rate, other variations are bandied about from time to time. One participation rate is the ratio of the civilian labor force to the total population of the country rather than just the total noninstitutionalized civilian population. Other common variations are for different demographic segments of society--whites, blacks, males, females, etc. These rates are based on the civilian labor force FOR THAT DEMOGRAPHIC GROUP and the total noninstitutionalized civilian population FOR THAT DEMOGRAPHIC GROUP.

The Historical Trend

Labor Force Participation Rate
Labor Force Participation Rate
As illustrated in the accompanying chart, the "official" labor force participation rate in the United States has risen significantly since the 1960s. The current participation rate is in the high-60 percent range.

The primary reason for this rise is the increased participation of women in the labor force. The traditional husband-works-and-wife-stays-at-home stereotype has changed dramatically over the decades. While differences persistent, the male participation rate is in the mid 70 percent range, but falling, and the female participation rate is about 60 percent, but rising. Should these trends continue, participation rates for males and females are likely to be about the same in a few decades.

Demographic Differences

Labor force participation rates differ across assorted demographic groups in the economy. Here are few considerations.

  • Ethnic Group: Slight differences exist in the participation rates of whites, blacks, and hispanics. Hispanics have the highest of the three, followed closely by whites, with blacks a few percentage points lower. While differences do exist, they are not as big as many think.

  • Age: Significant differences exist in participation rates for alternative age groups. As might be expected, folks over 65 years of age have the lowest participation rates of any age group. While most are retired, about 15-20 percent continue in the labor force. On the other end of the career spectrum, 16-20 year olds also tend to have relatively low participation rates, in the mid-50 percent range. The highest participation rates, which also should come as no surprise, are for those in the 25-54 year age bracket. Males are in the mid-90 percent range and females are in the mid-70 percent range in this age bracket.

  • Education: Another demographic characteristic with notable participation rate differences is education level. Participation rates increase rather dramatically as education increases. The participation rate for workers who have not completed hight school is around 60 percent. In contrast, the rate for workers with 4 or more years of college (basically people with college degrees) is close to 90 percent. This pattern is reflected in all demographic categories, including sex, ethnic group, and age.

The Ins and Outs

The total noninstitutionalized civilian population 16 years of age and over, which is the basis for calculating the labor force participation rate, first identifies those segments of the total population who are over 16 years of age, are civilians, and are not institutionalized. In other words, the total noninstitutionalized civilian population automatically excludes three key groups from the total population: children under 16 years of age, military personnel, and anyone who is institutionalized (prison, mental hospitals, and the like). The presumption is that these three groups are unavailable for productive activity.

The difference between the total noninstitutionalized civilian population and the civilian labor force is largely based on "potential" workers who are unwilling or unable to participate in the labor force.

  • Those falling in the unwilling category are homemakers (housewives and househusbands) who choose to tend to family responsibilities, students who choose devote their efforts to a formal education (high school, college, technical school, etc.), elderly who decide to retire, and discouraged workers who decide that they have little or no chance to find employment.

  • Those falling into the unable category include those elderly who are forced to retire due to mandatory retirement, homemakers (especially those with small children) who have no choice but to attend to family responsibilities, and the mentally or physical disabled who lack the ability to participate in productive activities.

Policy Issues

The labor force participation rate is a handy measure to have around when concerned turns to topics like the economy's ultimate productive capabilities, income redistribution and transfer payments, and long-term structural changes in society.
  • When economists are concerned with full employment of the economy's resources they generally focus on the natural unemployment rate and the civilian labor force. However, the labor force participation rate is also important to the notion of production capabilities. While about 30 percent of the total noninstitutionalized civilian population (in the range of 60 million people) is either unwilling or unable to engage in productive activities, this group has the potential to enter the labor force.

    The question is what might move these folks out of the "not in the labor force" category and into the civilian labor force. It could be a change in social norms, such as what enticed females to move away from the traditional housewife role and into the labor force. It could be a change in the mandatory retirement age that allow or encourage the elderly to continue working. It could be programs that improve the chances of unemployed workers finding jobs and thus reduce the number of discouraged workers.


  • The labor force participation rate is also useful when the discussion turns to transfer payments and the redistribution of income. This rate indicates that portion of the population that is responsible for generating most of the economy's total production. In other words, about 70 percent or so of the population produces the goods and generates the income used by the other 30 percent for consumption. The labor force participation rate indicates the source of income that is redistributed and transferred to others. An increase in the labor force participation rate means more workers are generating income and that a smaller burden is placed on any individual worker.

  • Another handy bit of information obtained from the labor force participation rate is long-term structural changes. The most obvious one occurring in past decades has been the increased labor force participation rate of females, a trend indicating a fundamental change in social customs. Women have moved away from the traditional housewife role. Other types of social changes can also be indicated by the labor force participation rates, including increased participation and integration of different ethnic groups into the economy. As the participation rates of blacks and hispanics become more like that of whites, then the indication is one of greater integration.

<= LABOR FORCELAGGING ECONOMIC INDICATORS =>


Recommended Citation:

LABOR FORCE PARTICIPATION RATE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2014. [Accessed: July 29, 2014].


Check Out These Related Terms...

     | civilian labor force | labor force | unemployment rate | Current Population Survey | Bureau of Labor Statistics | unemployment rate, measurement problems | alternative unemployment rates | employment rate | employment-population ratio | employed persons | unemployed persons | not in the labor force |


Or For A Little Background...

     | unemployment | labor | macroeconomic problems | macroeconomic goals | factors of production | full employment | circular flow |


And For Further Study...

     | unemployment sources | natural unemployment | unemployment problems | unemployment reasons | unemployment, production possibilities | full employment, production possibilities | macroeconomic sectors | Bureau of Labor Statistics | gross domestic product | business cycles | macroeconomic markets | resource markets | inflation | stabilization policies | government functions | underground economy | business cycle indicators |


Related Websites (Will Open in New Window)...

     | Bureau of Labor Statistics |


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