Labour force participation rate: formula and how to calculate it

The unemployment rate falls, and the news is reported as good. Sometimes it is. Sometimes the rate fell because thousands of people gave up looking for work, which removes them from the count of the unemployed without putting them in a job. One number tells the two stories apart: the participation rate.

This article explains what the labour force participation rate is, gives the formula, works through the calculation in five steps, compares it with the employment and unemployment rates, and says why people who hire and plan workforces should watch it. American spelling is labor force. The concept is the same.

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What is the labour force participation rate?

Statistics Canada gives a compact definition in its Guide to the Labour Force Survey: “Participation rate: Total labour force expressed as a percentage of the population aged 15 years and over.”

The labour force is the employed plus the unemployed. Statistics Canada defines it as the civilian non-institutional population of working age “who, during the survey reference week, were employed or unemployed”. The UK's Office for National Statistics uses different words for the same idea. Its guide to labour market statistics says: “Economically active is defined as those in employment plus those who are unemployed.” British statistics often report its mirror image, the inactivity rate, which the ONS publishes as a headline measure for people aged 16 to 64.

So everyone of working age falls into one of three groups.

1. Employed. People who did paid work in the reference week, or had a job that they were temporarily away from.
2. Unemployed. People without a job who have looked for work recently and are available to start.
3. Not in the labour force. Everyone else. The ONS calls this group economically inactive.

The first two groups are the labour force. The participation rate is their share of the whole.

The formulas

Labour force = employed + unemployed

Labour force participation rate = (labour force ÷ working-age population) × 100

Three points of definition decide the answer.

• Working-age population. Statistics Canada uses the population aged 15 and over. The ONS counts people aged 16 and over, and its headline rates use ages 16 to 64. Always check which population a published figure uses.
• Who is left out. Statistics Canada's survey excludes, among others, full-time members of the regular armed forces and people living in institutions. That is what the phrase civilian non-institutional means.
• Unemployed is a strict word. A person without a job counts as unemployed only if they are looking and available. The ONS describes the inactive as people “without a job who have not sought work in the last four weeks and/or are not available to start work in the next two weeks”.

How to calculate the participation rate in five steps

Take a town with 100,000 residents aged 16 and over.

1. Define the population. Working-age residents, not in the armed forces or in institutions: 100,000.
2. Count the employed. 60,000.
3. Count the unemployed, meaning those without a job who are looking and available: 4,000.
4. Add them to get the labour force. 60,000 + 4,000 = 64,000.
5. Divide by the population, and multiply by 100. 64,000 ÷ 100,000 × 100 = 64%.

The participation rate is 64%. The other 36,000 people are not in the labour force.

The same formula works for any group. Statistics Canada notes that the participation rate for a particular group, “for example, women aged 25 years and over”, is the labour force of that group as a percentage of the population of that group. If the town has 20,000 women aged 25 to 54, of whom 15,600 are in the labour force, their rate is 78%.

In practice nobody counts a whole population. National statistics offices estimate these figures from a household survey, which in both Canada and the UK is called the Labour Force Survey.

Participation, employment and unemployment rates

Three rates are built from the same three groups. They have different denominators, and they answer different questions.

The definitions come from the same sources. Statistics Canada defines the employment rate as the number of employed persons as a percentage of the population, and the unemployment rate as the number of unemployed persons “expressed as a percentage of the labour force”. The ONS calculates its unemployment rate by dividing the unemployment level by the total number of economically active people.

In the town above: the employment rate is 60,000 ÷ 100,000 = 60%. The unemployment rate is 4,000 ÷ 64,000 = 6.25%.

Now suppose that 2,000 of the unemployed stop looking. Nobody has found a job. The unemployed fall to 2,000 and the labour force to 62,000.

• The unemployment rate falls from 6.25% to about 3.2%, which looks like good news.
• The employment rate stays at 60%.
• The participation rate falls from 64% to 62%, which shows what really happened.

That is why economists read the three together.

Who is not in the labour force?

Being outside the labour force is not the same as being idle. The ONS lists the main economically inactive groups.

1. Students.
2. People looking after family and home.
3. The long-term sick and disabled.
4. The temporarily sick and disabled.
5. Retired people.
6. Discouraged workers. Statistics Canada describes discouraged searchers as people who wanted work and were available, “but who did not look for work because they believed no suitable work was available”.

The ONS notes that the characteristics of these groups differ. Students tend to be young. Those looking after family and home tend to be women of child-rearing age. Retirees tend to be older. So a country's participation rate moves with its age profile, its school-leaving age, its pension age, the cost of childcare and the health of its people, as well as with the state of the economy.

Why employers should watch the participation rate

• It measures the pool. The unemployment rate tells you how many people are looking. The participation rate tells you how many people are in the market at all. In an area where participation is low, a recruitment drive has fewer people to reach.
• It shows who is missing. Rates by age, sex and region show which groups are under-represented in work: parents of young children, carers, older workers, people with health conditions.
• Those groups can be reached. Part-time and flexible roles, returner programmes, phased retirement and adjustments for health conditions bring people into the labour force who would not apply for a standard full-time job. Our guide to strategic workforce planning explains how to build that into a plan.
• It frames your own numbers. If your sector's labour supply is shrinking, keeping the people you have matters more. Our guide to the meaning of attrition shows how to measure who is leaving.

We have not quoted current rates, because they change every month. For figures, go to your national statistics office: the Office for National Statistics in the UK, Statistics Canada, or the Bureau of Labor Statistics in the United States.

Common mistakes

Dividing by the whole population. The denominator is the working-age population, as your statistics office defines it. Children are not included.

Counting everyone without a job as unemployed. Only those who are looking and available count. The rest are outside the labour force.

Mixing the denominators. The unemployment rate is divided by the labour force. The participation and employment rates are divided by the population.

Comparing countries without checking definitions. Age limits differ. Statistics Canada's guide includes a note on international comparisons for that reason.

Reading one rate alone. A falling unemployment rate with a falling participation rate is not a recovery.

Treating “inactive” as “idle”. Students, carers and people who are ill are doing a great deal. They are not in the labour market.

Frequently asked questions

What is the labour force participation rate formula?

Labour force participation rate = (labour force ÷ working-age population) × 100. The labour force is the number of employed people plus the number of unemployed people who are looking for work and available to start.

How do you calculate the participation rate?

Add the employed and the unemployed to get the labour force. Divide by the working-age population, and multiply by 100. With 60,000 employed, 4,000 unemployed and a working-age population of 100,000, the rate is 64%.

What is the labor force formula?

Labor force = employed + unemployed. People who have no job and are not looking for one, such as full-time students, retired people and those looking after family, are not in the labor force.

What is the difference between the participation rate and the unemployment rate?

The participation rate divides the labour force by the working-age population, and shows how many people are in the labour market. The unemployment rate divides the unemployed by the labour force, and shows how many of those in the market cannot find work.

Who is not counted in the labour force?

People of working age who are neither employed nor unemployed. The Office for National Statistics lists students, people looking after family and home, the long-term and temporarily sick and disabled, retired people and discouraged workers.

Why can the unemployment rate fall while participation also falls?

Because people who stop looking for work are no longer counted as unemployed. They leave the labour force. The unemployment rate falls although nobody has found a job, and the falling participation rate is the sign of it.

Your next step: look up three numbers

1. Find the participation, employment and unemployment rates for your country or region, from the national statistics office.
2. Look at the participation rate by age and sex. Which groups are furthest below the average?
3. Ask which of your roles could be redesigned to suit one of those groups.

For a method that compares the skills you have with the skills you need, read and download our skills gap analysis guide. The guide is free to read, and the PDF uses our short download form.

Want to see your own workforce clearly before you plan? Book a New Dynamics demo and bring your current structure. You can also email contact@new-dynamics.com.