The labour force participation rate indicator plays a central role in the study of the factors that determine the size and composition of a country’s human resources and in making projections of the future supply of labour. The information is also used to formulate employment policies, to determine training needs and to calculate the expected working lives of the male and female populations and the rates of accession to, and retirement from, economic activity – crucial information for the financial planning of social security systems.
The indicator is also useful for understanding the labour market behaviour of different segments of the population. The level and pattern of labour force participation depends on employment opportunities and the demand for income, which may differ from one category of persons to another. For example, studies have shown that the labour force participation rates of women vary systematically, at any given age, with their marital status and level of education. There are also important differences in the participation rates of the urban and rural populations, and among different socio-economic groups.
Malnutrition, disability and chronic sickness can affect the capacity to work and are therefore also considered as major determinants of labour force participation, particularly in low-income environments. Another aspect closely studied by demographers is the relationship between fertility and female labour force participation. This relationship is used to predict the evolution of fertility rates, from the current pattern of female participation in economic activity.
Comparison of the overall labour force participation rates of countries at different stages of development reveals a U-shaped relationship. In less-developed economies, labour force participation rates can be seen to decline with economic growth. Economic growth is associated with improved educational outcomes and longer time spent studying, a shift from labour-intensive agricultural activities to urban economic activities, and a rise in earning opportunities, particularly for the “prime” working age (25 to 54 years) head of household so that other household members with lower earning potential may choose not to work. These factors together tend to lower the overall labour force participation rate for both men and women, although the effect is weaker for the latter and shows a wider variation.
It is also instructive to look at labour force participation rates for males and females by age group. Labour force activity among the young (15 to 24 years) reflects the availability of educational opportunities, while labour force activity among older workers (55 to 64 years or 65 years and over) gives an indication of the attitude towards retirement and the existence of social safety nets for the retired. Labour force participation is generally lower for females than for males in each age category. Among the prime working age, the female rates are not only lower than the corresponding male rates, but they also typically exhibit a somewhat different pattern. During this period of their life-cycle, women tend to leave the labour force to give birth to and raise children, subsequently returning – but at a lower rate – to economically active life. In developed economies, the profile of female participation is increasingly becoming similar to that of men.
To some degree, the way in which the labour force is measured can have an effect on the extent to which men and women are included in labour force estimates. Unless specific probing questions are built into the survey questionnaire, participation among certain groups of workers may be underestimated – particularly the number of employed persons who (a) work for only a few hours in the reference period, especially if they do not do so regularly; (b) are in unpaid employment; or (c) work near or in their home, thus mixing work and personal activities during the day. Since women, more so than men, are found in these situations, it is to be expected that the number of women in employment (and thus the female labour force) will tend to be underestimated to a larger extent than the number of men.