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Study notes

Labour Force Participation (Labour Markets)

  • Levels: A Level
  • Exam boards: AQA, Edexcel, OCR, IB

What is the labour force participation rate?

The labour force participation rate measures the percentage of the population of working age who economically active (i.e. employed or looking for work).

In some rich countries such as Japan and Italy where natural population growth is negative, their low participation rates are acting as a significant drag on aggregate supply growth / trend rise in potential GDP.

There are big variations in the participation rate - i.e. those who are participating with the labour market by being either in employment or unemployed and searching for work. It is particularly low in developed countries such as Italy, Greece and Japan.

There can be many reasons for people of working age being inactive including:

  • The need to look after an elderly/ill relative
  • Choosing to remain in full time education
  • Spending time out of the labour market to raise and look after a young family

Participation rates are also affected by the number and quality of jobs available in the labour market and also by factors such as the quality of, access to and affordability of child care.

Labour participation rates in the UK in 2015 vary widely by age:

  • People aged 16-24 years: Participation rate = 63.4%
  • People aged 25-49 years: Participation rate = 86.1%
  • People aged 50 years to the State Pension Age: Participation rate = 75.3%

In 2015, over 11% of people aged above the state retirement age were still active in the labour market! In part this is due to improving years of health life expectancy and also a fall in the returns on occupational pensions which is prompting more people to continue in paid work after they have reached the state pension age.

Improving the labour market participation rate is an important supply-side economic objective in many countries.

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