What is the Labor Force Participation Rate?
The labor force participation rate is a measure of an economy’s active workforce that indicates the percentage of all people of working age who are employed or actively seeking employment. Labor force participation is calculated as the sum of all employed workers or those actively seeking employment divided by the total non-institutionalized, working-age population. This means that it omits people in prisons, nursing homes, mental hospitals, and the military. It includes all other people of work age (16 years or older).
In March 2020, the U.S. labor participation rate was about 62.7%. Figures had remained around 63% since 2013. However, the COVID-19 pandemic significantly increased the number of people out of work. As a result, the labor force participation rate fell to around 60% in early 2020. It has been rising since with only small dips. In October 2022, the labor participation rate was 62.2%.
Factors Influencing the Labor Force Participation Rate
The labor force participation rate is influenced by both short- and long-term economic trends. Short-term trends include unemployment rates and business cycles. Long-term trends include industrialization and the accumulation of wealth.
Social factors also play a role in the labor force participation rate. Women have increasingly left their roles as homemakers to take on jobs, nearly doubling the women’s labor force participation rate between 1948 to 1998 (32% to 60%) and currently standing at 56.7% (as of October 2022).
Additionally, the labor force participation rate is affected by demographic factors, such as a change in the working-age population between generations. The retirement of a large number of baby boomers has reduced labor force participation. In 1995, the share of working-age people in the labor force peaked at 72% and has since fallen to 62.2%.
As mentioned, the biggest impact on the labor force participation rate in recent years has come from the COVID-19 pandemic. Many people were out of work for a significant amount of time, and the labor force participation rate has still not risen to pre-pandemic levels.
Labor Force Participation Rate by State
As of September 2022, data from the Federal Reserve Bank of St. Louis shows that the states with the highest labor force participation rate are the District of Columbia (71.6%), Nebraska (69.9%), Colorado (69.6%), North Dakota (68.8%), South Dakota (68.7%), Minnesota (68.1%), Utah (68.0%), Iowa (67.7%), Kansas (66.1%), and New Hampshire (65.8%).
The ten states with the lowest labor participation rate as of September 2022 are West Virginia (55.1%), Mississippi (55.2%), New Mexico (56.3%), Arkansas (56.8%), South Carolina (56.9%), Alabama (57.1%), Kentucky (58.0%), Maine (58.4%), Louisiana (58.5%), and Florida (59.5%).