Participation Rate in Economics - Essay Example

Participation Rate A) In Economics, various methods and rates are used to measure the effectiveness and utilization of the labor in an economy. It isoften a question of utmost importance to determine how productively the labor force of an economy is contributing to the growth of the county. Hence, economists worldwide use certain rates to determine the level of contribution and participation of the labor force at a given time in an economy. The most common rate used by analysts is the employment rate which represents the total people who are currently employed as a percentage of the total working age population of the country, usually between 15-64 years. (N.A., Definition of employment rate, 2009) Economists use the employment rate to understand the economic situation prevailing in the country. Another important rate is the labor force participation rate which is widely used by experts to analyze how effectively the economy is absorbing the labor force. It helps the experts in analyzing how the employment situation in the country has changed over a period of time. As the name suggests, the participation rate is generally defined as the level of participation of the labor force within an economy. It can be further characterized as the percentage of people that are within the working-age group of the country, who are either employed or unemployed but actively looking for jobs. The second part of the definition is very essential since it helps in defining the labor force that is unemployed but not actively looking for jobs. Therefore, those people within the working-age group forming a part of the labor force, but not actively seeking any job are considered to be not a part of the working labor force. Hence they are excluded from the calculation of the labor force participation rate of the country. (Moffatt, 2012) A higher labor force participation rate signifies that a greater percentage of the total labor force is employed or seeking employment, showing a positive sign of growth for the economy. Whereas on the other hand, when the labor force participation rate starts to fall, it shows that the labor force is either losing jobs or not interested in searching for jobs anymore. This is usually taken as a sign of slowing down of the economy due to several factors. In times of recession, the participation rates usually fall below the normal levels since many people are forced to leave jobs and availability of jobs is also restricted. While during periods of boom, when the economy is flourishing and new jobs are being created, more and more people are interested in finding jobs and job opportunities are immense which leads to a substantially higher participation rate of the labor force. In recent times as the US economy is seeing a fall in the unemployment rate it is still facing a decreasing participation rate, owing to factors such as people pursuing further education or quitting search for jobs for good. (Wright, 2011) Participation rate plays a significant part when looking at the unemployment rate. It helps in understanding how many people are still unemployed but actively looking for jobs. Therefore, a portion of labor force which is categorized as unemployed might still be part of the active labor force and hence falls under the category of participation rate. Since unemployment rates during recession reflect all those who are presently unemployed, it might give a misleading figure owing to the fact that massive lay-offs have taken place. Nevertheless, when calculating the participation rate, it takes into account the portion of labor force that is unemployed but actively looking for job. It can be said that the actual percentage of labor force that is unemployed and not actively searching for jobs is way less than that being portrayed by the unemployment rate. Hence, the unemployment rate has to be analyzed side by side the participation rate, to give a better understanding of the employment situation at hand. Generally, the working age population of a country is considered to lie within 16 to 64 years old. However, in certain instances students, homemakers and people retired before the age of 64 are usually not counted as active participants in the labor force; hence their numbers are excluded before calculating the participation rate for the country. (Investopedia, 2012) It is essential to understand that the labor force participation rate can see a downward decline when the growth rate of the population of the country has outweighed the growth of the employed and unemployed together. This means that as the population increases with a greater proportion than that of the employed or the unemployed, the participation rate can decrease. Overall, this key economic indicator is an essential component in analyzing and evaluating the long-term growth of any economy and helps the economists and the governments in devising suitable polices to help improve the economy. (Alexia Prskawetz, 2006) The labor force participation rate is calculated by dividing the civilian labor force by the total non-institutionalized civilian population. There are some other variations in calculating the participation rate whereby the total population is taken as the denominator instead of the non-institutionalized civilian population. The non-institutionalized civilian population of a country is defined as the people who are 16 years or older, but not in prison, military, police, etc. This helps in identifying the true jobs that the local civilians are a part of. Most of these statistics and data are made available by the Bureau of Labor Statistics of the respective country. They carry out researches on a monthly or quarterly basis to gather data to help calculate these important economic figures. (N.A., Labor Force Participation Rate, 2012) B) Table 1 Male and Female Participation Rate for Australia Years/Gender Male Female 1954 85.0 35.0 1966 82.2 41.0 1975 80.5 43.0 1985 75.9 46.2 1995 72.4 53.6 2005 72.2 57 Note: Values from “An international comparison of labor force participation, 1977-84,”by P. J. McMahon,1986, Monthly Labor Review May 1986; Trading Economics, Retrieved April 10, 2012, from http://www.tradingeconomics.com/australia/labor-participation-rate-male-percent-of-male-population-ages-15-plus--wb-data.html From the above graph we can analyze that the participation rate for males has decreased slightly while the participation rate for females has increased substantially in the past few decades owing to the equal wage standards and more freedom for females to pursue jobs after marriage. C) The following graph shows the changing trends in the married and non-married workforce participation rates from 1980 to 2005 (see Figure 1). (Joanna Abhayaratna, 2006) Figure 1. Married and non-married women’s workforce participation rates, 1980 to 2005. From Workforce Participation Rates – How Does Australia Compare?, by Abhayaratna J. and Lattimore, R., Productivity Commission Staff Working Paper, 2006, p. 11. Figure 2. Married and Non-married Female Participation Rates. From Female Participation in the Australian Labor Force, by D. E. Lewis and B. Shorten, University of Wollongong, p. 243. Figure 3. Married and Non-married Female Participation Rates. From Female Participation in the Australian Labor Force, by D. E. Lewis and B. Shorten, University of Wollongong, p. 240. As the above graph shows there was a major increase in the participation rates from 1933 to 1954 for almost all of the age groups. Most prominent and the largest increase was recorded in the category of women under 30. If we then go on to compare the increase that took place from 1954 to 1981 it was even more substantial and overshadows the previous mentioned change. Hence, as the years progressed more and more women got engaged in the workforce. In the case for non-married women the participation rate has continuously increased in the 20th century. Nevertheless, this increase has been evenly spaced out and more importantly smaller in magnitude compared to the married women. From 1954 to 1981, the participation rate for young and older women slightly decreased while for middle aged women increased. The net effect was still an overall increase. (Donald E. Lewis, n.d.) Figure 4. Married and Non-married Female Participation Rates. From Female Participation in the Australian Labor Force, by D. E. Lewis and B. Shorten, University of Wollongong, p. 241. Bibliography Alexia Prskawetz, B. M.-C. (2006). The Impact of Population Ageing on Innovation and Productivity Growth in Europe. Vienna: Institute for Demograph. Investopedia. (2012). Participation Rate. Retrieved from INVESTOPEDIA: http://www.investopedia.com/terms/p/participationrate.asp#axzz1reApb5X4 Joanna Abhayaratna, R. L. (2006). Workforce Participation Rates - How does Australia compare? Canberra: Productivity Commission Staff Working Paper. Moffatt, M. (2012). What is the Labor Force Participation Rate? Retrieved from About.com:Economics: http://economics.about.com/od/unemploymentrate/f/labor_force.htm N.A. (2009, October 28). Definition of employment rate. Retrieved from Statistics Canada: http://www.statcan.gc.ca/pub/81-004-x/2009004/def/employrate-tauxemploi-eng.htm N.A. (2012). Labor Force Participation Rate. Retrieved from Amosweb: http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=labor+force+participation+rate Wright, J. (2011, February 10). The Participation Rate vs. Unemployment Rate. Retrieved from EMSI: http://www.economicmodeling.com/2011/02/10/the-participation-rate-vs-unemployment-rate/ Australian Bureau of Statistics. Retrieved from ABS: http://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/6202.0 Read More