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Economic Activity Rate or Labour Force Participation Rate

Definition:

The labor force participation rate (LFPR) is the proportion of people eligible to participate in the labor force who are actually participating in it by working or looking for work. It is usually expressed as a percent of the total labor force-eligible population in an economy.

Important key points:

  • Economic activity rate is also called ‘Labor Force Participation Rate’.
  • The economic activity rate expresses the percentage of economically active persons (employed or seeking employment) in the reference population.
  • It is measured for the age group between 16 – 64.
  • It is the proportion of the population which offers its services on the labor market.
  • People who are still undergoing studies, housewives and persons above the age of 64 are not reckoned in the labor force.
  • It is represented in percent (%) form.

Explanation with an example:

Formula to get economic activity rate

= labour force / adult population (between age 16-64) x 100

Let’s assume that the population of a country is 10,000.

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Types Of Activity Rate:

  1. Gross Activity Rate: It is calculated for the total population. In the above example, If denominator is used as 10,000 in place of 7000 (taking total population), then the activity rate will be called as “gross activity rate”.
  2. Standardized Economic Activity Rate: It is calculated for the population aged 15 and over. If in the above example the population above 15 would be 8000, then the numerator in the formula will be 8000 in place of 7000. Then the activity rate will be called as “standardized economic activity rate”.
  3. Net Economic Activity Rate: It is calculated for the population aged 15 to 64. It is the same as LFPR.

Factors affecting activity rate:

The rate varies from one country to another depending upon several factors such as:

  • School leaving age
  • Retirement age
  • Popularity of Higher Education
  • Social customs
  • Opportunities

How it is useful:

  • to understand the overall employment status in the economy.
  • If the rate is on the higher side, it is a good sign. But if it is on the lower side, it can also act as a warning sign for any economy.

Indian Labor force Participation Rate:

India’s Labor Force Participation Rate is updated yearly, available from Dec 1990 to Dec 2017 reported by World Bank.

Average rate: 59.4 %

Highest: 60.8 % in 1994

Lowest: 53.8 % in December 2017

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