The most recent jobs report showed that the unemployment rate inched down from 6.9% in October to 6.7% in November as the nation gained 245,000 jobs. But the labor force shrank by 400,000 people over the same period, dropping the labor force participation rate from 61.7% to 61.5%. How is labor force participation related to unemployment — and what does it mean for the nation’s economic recovery from the COVID-19 pandemic?
What is the labor force participation rate?
The labor force participation rate is the percentage of the working-age population — the civilian noninstitutional population age 16 or older — in the labor force.
The labor force measures how many Americans are working or actively seeking work — it’s the sum of the employed population and the unemployed population, where unemployed means a person is out of a job but has looked for work in the past month. Meanwhile, anyone who is not employed and has not looked for work in the past month is not considered to be in the labor force.
The number of people flowing in and out of the labor force affects the unemployment rate, since the unemployment rate is a measure of how many people in the labor force are out of a job. For example, if total employment holds constant and unemployed Americans stop looking for work, thereby leaving the labor force, the unemployment rate will fall even though no jobs have been added. Conversely, if employment holds steady and recent graduates enter the labor force looking for work, the unemployment rate will rise even though no jobs have disappeared.
The labor force participation rate increased steadily during the last three decades of the 20th century before peaking in February 2000. Since then, the rate has fallen, partly because the American population is proportionally older compared to previous decades. The first baby boomers reached age 55 in 2001, and as the generation continued to age beyond what is considered prime working age — between 25 and 54 — the nation’s labor force participation rate also waned. The aging population wasn’t the only factor, though, as participation among prime working age men and women also declined in the first two decades of the 21st century.
In April, labor force participation fell to its lowest rate since 1973.
The labor participation rate was 63.4% in February. Then the pandemic hit, and many Americans faced new health concerns and childcare hurdles as COVID-19 spread and schools closed. By April, the labor force participation rate had fallen to 60.2%, as the labor force shrank by 8.1 million people in the early economic fallout of the pandemic. The last time the participation rate was recorded below 61% was in 1973.
By November, the rate had rebounded slightly to 61.5%, but the labor force was still down by 4.1 million people compared to February. It’s important to note, some Americans not counted in the labor force last month were still hoping to work. Of the 100.6 million people not in the labor force in November, 7.1 million reported wanting a job and 3.9 million reported not looking for work in the past month because of the pandemic. But because they had not looked for work in the past month, these people were not counted among the 10.7 million unemployed Americans in November.
As of November, Americans aged 25 to 34 had the largest decline in labor force participation compared to February, with participation 3.2 percentage points below February’s rate. Women in this age group were particularly affected. Their participation rate down by 4 percentage points from 78.2% in February to 74.3% in November — more than double the 1.9 percentage point drop across women of all ages.
Between February and April, labor force participation dropped by 3 percentage points among those over the age of 20. But not all groups fared the same. Participation fell by 5.7 percentage points among Hispanic women, followed by Black men and women with 4.6 and 4.4 point drops, and Hispanic men at 3.9. The drop among white women was 2.8 percentage points, just above white men at 2.7.
Labor force participation had rebounded somewhat by November but was still down by 2 percentage points compared to February for people over the age of 20. Within that age group, Hispanic women, Black women, and Black men showed the largest persisting participation declines. Among Hispanic and Black women, participation was down by 4.1 and 3.2 percentage points, respectively. Participation among Black men was 3 percentage points below the February rate.
The labor force participation rate will continue to signal how Americans are recovering economically.
Previous job reports during the pandemic showed the unemployment rate dropping from its April peak while the labor force participation incrementally improved. The November job report paints a more complicated picture. While fewer people in the labor force were unemployed in November, there were also fewer Americans in the labor force compared to October.
For more data on the nation’s economic recovery from the pandemic, visit the COVID-19 Impact and Recovery Hub.
