LABOUR PARTICIPATION

The participation rate is a measure of the active portion of an economy's labour force. It refers to the number of people who are either employed or are actively looking for work. The labour force participation rate is calculated as the labour force divided by the total working-age population. The working age population refers to people aged 15 to 64.

At the time of economic recession, the labour force participation rate is generally seen to go down. This is because, at the time of recession, the economic activity is very low which results in fewer jobs which in turn results in people being discouraged to focus on employment which eventually leads to lower participation rate.

If the participation rate is on the lower side, it can act as a warning sign for any economy but if the rate is on the higher side, it is a good sign. In terms of economic influence, this measure punches above its weight in that its impact on unemployment and economic growth is far greater than the credit it is given.

It is also necessary to analyse the participation rate along with the unemployment rate because people classified as unemployed according to the unemployment rate might not be active participants of the work force. If looking at the unemployment rate alone, an assumption can be made that a higher number of people are not earning income, and are therefore not active contributors to the economy. However, these people may not be working due to choice and therefore could still be active contributors to the economy. They could be either be retired and spending their savings, or students increasing their skills and their future income potential. The participation rate and unemployment data should be observed in conjunction to better understand an economy's overall employment status.