Jun 02, 2013 | by Franck Cushner, CFP®
Participation Rate – Demographic Fact
Each month, the Bureau of Labor Statistics releases the participation rate, a measure of the active portion of an economy's labor force, age 16 and above. The rate refers to the number of people who are either employed or are actively looking for work. The number of people who are no longer actively searching for work would not be included in the participation rate. During an economic downturn, many workers often get discouraged and stop looking for work, thus resulting in a participation rate decrease.
The improvement behind the drop in unemployment for March to 7.6%, was the result of nearly 500,000 individuals dropping out of the labor force, resulting in the smallest percentage of the working age population in the workforce in a generation.
Only 63.3% of the working–age population was either working or actively looking for a job this past month, the lowest rate since May 1979.
The participation rate is important for economic prosperity, since a higher rate provides for a larger qualified labor pool for companies to hire from. Demographics are also a factor, as an aging population can have both a positive and negative effect, either through retirement or new workers entering the workforce. As an additional measure, the participation rate, in conjuncture with the unemployment rate, may help provide a better understanding of the overall employment situation month to month.
Source: Bureau of Labor Statistics
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