Understanding the Labor Participation Rate
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and By RICHARD WORKS ANGIE SEWELL
„ … †‡„ˆ ‰„Š‹ ˆŒ‡ ‡‡‡Ž ‰†ŠŒ ‘Œ† ‡‡‡Ž conomists use labor market What is the primary source for the underthe employed individuals (152,111,000) by data to evaluate how well an lying data that make up these statistics? Each the population (254,742,000) in the example economy is using its most month, the Census Bureau conducts the from Table 1. In like manner, one could ‰‘ Š†‹ ‡‡‡Ž ‰„Š‹ ˆŒ‡ ‡‡‡Ž ’ “ “ valuable resource—its people. Current Population Survey, which consists of a calculate the unemployment-population ratio ‰„Š† „„„ ‡‡‡Ž Some people, however, argue 60,000-household sample that is representative by dividing the„ unemployed individuals by ‰†ŠŒ ‘Œ† ‡‡‡Ž ‚ � “ that official measures are restrictive and do of the United States This sample which would be for the population, 2.9%
† ‹” population. not adequately capture… †‡„ˆ the breadth of labor roughly consists of 110,000 individuals. A December 2016. market issues. To address the concerns with quarter of the sample changes on a monthly employment numbers, the Bureau of Labor basis, such that no household is interviewed
 Â? Statistics provides alternative measures of labor more than four consecutive months. This results in 75 percent of the sample remaining underutilization published monthly in The • Â?  ‰ ÂŽ constant from month to month, and half Employment Situation. This article will discuss  ‰ÂÂŽ †ŠŒ ‘Œ† of the sample remaining constant from the most common statistics: the labor force – ‰ –Ž „Š‹ ˆŒ‡ ˆ† ‘”  year to year. All interviews follow the same participation rate and the unemployment rate. „Š† „„„ Š‹ ‘”  procedures, and the status of an individual is Collectively, these will provide a picture of — ‘ Š†‹ ÂŒ ‘” – determined by how they respond to a specific the labor market situation. In addition, this • ‹Š „‡† set of questions. Once the data is collected, the article will discuss how HR activities may „  „ˆ — responses are weighted to population estimates improve employment statistics, and thus the “ from the Census Bureau. These procedures economy. Please note, any suggestions made Â? — reduce the possible sampling error so that the in this article only reflect the opinion of the total unemployment picture is not distorted. authors, and not necessarily the position of € ƒ Â? What people are counted in these statistics? their respective employers.
Individuals are considered employed if they Figures 1 and 2 show the ’ labor force participerform any work for pay. The unemployed are pation rate and the unemployment rate, What exactly makes up the unemployment those without work, but who make themselves respectively, from 2001 through 2016. The and labor force participation rates, and what ’ ˜ available and are actively seeking employment. data show that the labor force participation rate do they actually mean? Actively looking for work may consist of experienced a slow but steady decline. However, contacting employers or employment centers to The labor force participation rate is the there appears to be two separate periods: Figure inquire about vacancies, submitting resumes or proportion of the civilian noninstitutional 1 shows that the second period (2009-2016) applications, and having interviews. Any means population that is working, or looking and had a more drastic decline when compared to of active job search qualifies an individual to available for work. Table 1 provides the the first period (2001-2009). The labor force be counted in the labor force. Individuals who statistics for December 2016. The labor force rate decreased 2 percent between January 2001 are unemployed and not looking for work participation rate is calculated by dividing and December 2008, and 4.5 percent between are not considered to be in the labor force. the labor force number (159,640,000) by the January 2009 and December 2016. In much These individuals may be students, retirees, or civilian noninstitutional population number the same way, the unemployment rate during those with family responsibilities preventing (254,742,000). This produces the rate in this pivotal period drastically increased from 5 them from being in the labor force. Some decimal format. The unemployment rate, on percent in April 2008 to 10 percent in October may also simply not want to work, or may the other hand, is the number of unemployed 2009. No doubt the subprime mortgage be discouraged by thinking there is nothing individuals as a percentage of the labor force. financial crisis of 2008 and subsequent available for them due to various factors. Therefore, the unemployment rate is calcurecession had an adverse effect on both the Common factors may include a lack labor force participation and unemployment lated by dividing the unemployed number of experience or training, prior prolonged rates. Toward the end of the Obama adminis(7,529,000) by the labor force (159,640,000). periods of unsuccessful job searches, tration, unemployment levels were back to the A lesser-known statistic is the employmentlevels seen in the Bush era. and discrimination. population ratio. This is calculated by dividing
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