Participation Rate vs. Unemployment Rate: What’s the Difference?

Activity rate vs unemployment rate: an overview

The rate of participation and unemployment rate are economic measures used to gauge the health of the US labor market. The main difference between the two is that the participation rate measures the percentage of Americans who are in the labor force, while the unemployment rate measures the percentage of the labor force that is currently unemployed. Both are calculated by the Bureau of Labor Statistics (BLS).

Key points to remember

  • The participation rate measures the percentage of Americans who are part of the labor force.
  • The unemployment rate measures the percentage of the labor force that is currently unemployed.
  • A high participation rate combined with a low unemployment rate is a sure sign of a robust labor market.

Rate of participation

Citizens are classified as members of the labor force if they have a job or are actively looking for one. The participation rate is the percentage of American adults – excluding active duty military and incarcerated or otherwise institutionalized people – who are members of the labor force.

The 21st century has seen a steady decline in labor force participation. In 2000, it peaked at 67.3%. By July 2020, it had fallen to 62.7%. The COVID-19 pandemic had an initial impact on both unemployment and labor force participation. In fact, there was a marked drop in voter turnout in 2020 in the United States, from a level of 63.4% in January 2020 to 60.2% in April 2020, the largest drop in a single year since 2001.

Factors Influencing Turnout

A number of factors influence participation rates, including social, demographic and economic trends. Next a recession in 2001 and the 2008 financial crisisfor example, the participation rate has experienced significant declines.

Many economists point to the The baby boomer generation is retiring and leaving the labor force as partly responsible for a decline in labor market participation. Economists also argue that the decline is the result of low-skilled workers losing their jobs to outsourcing or automation, failing to find new employment, and therefore dropping out of the labor force altogether. . For this reason, they believe that the participation rate is a more accurate measure of the state of the labor market than the unemployment rate.

Unemployment rate don’t consider discouraged workers, defined as the unemployed who would like to work but have given up looking for work altogether, usually because they believe there are no jobs available.

However, there are a number of reasons American adults might choose not to participate in the labor force. Students, stay-at-home parentsand retirees may choose to stay out of the labor market, for example.

The Bureau of Labor Statistics calculates the unemployment rate six different ways using different criteria, but the most widely used is the U-3 rate which measures the number of people who are unemployed but actively seeking work.

Unemployment rate

The the unemployment rate only takes into account those of the working population. For the purposes of calculating the unemployment rate, part-time workers are considered to be employed, even if they are involuntary part-time workers or part-time workers who would prefer to be employed full-time but cannot find full-time employment due to inability to find full-time employment or lack of demand for their skills.

An unemployment rate of 5% means that only five out of 100 workers in the labor force are out of work. However, the unemployment rate does not take into account the unemployed who have completely given up looking, even if they want to work.

At the end of December 2020, the unemployment rate was 6.7%, according to the Bureau of Labor Statistics. The number of unemployed remains unchanged from November 2020 at 10.7 million. The report notes that “although both metrics are well below their April highs, they are nearly double their pre-pandemic levels in February.”

5.8%

The average annual unemployment rate in the United States from 1949 to 2019, according to the BLS.

A complete picture of the labor market

Taken together, the participation rate and the unemployment rate can provide a more complete picture of the labor market. A high participation rate combined with a low unemployment rate is a sure sign of a robust labor market. At the end of the 1990s, the activity rate was 65%, while the unemployment rate hovered below 5%. Most economists agree that it was one of the best times in modern history for American jobs.

However, the participation rate and the unemployment rate are not the only factors used to paint a portrait of the labor market. The employment-population ratio measures the ratio of adults aged 16 and over who are employed. The employment-to-population ratio is less subject to the vagaries of seasonal workers or those experiencing temporary unemployment due to illness, temporary layoffs, furloughs or other factors.

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