Labour Force Participation Rate
Description
Labour Force Participation Rate
What is LFPR?
The labour force participation rate is a measure of the proportion of a country’s working-age population that engages actively in the labour market, either by working or looking for work; it provides an indication of the size of the supply of labour available to engage in the production of goods and services, relative to the population at working age.
The breakdown of the labour force (formerly known as economically active population) by sex and age group gives a profile of the distribution of the labour force within a country.
The labour force participation rate is calculated by expressing the number of persons in the labour force as a percentage of the working-age population. The labour force is the sum of the number of persons employed and the number of unemployed.
What is the difference between WPR and LFPR?
• Labour Force Participation Rate (LFPR): LFPR is defined as the percentage of persons in labour force (i.e. working or seeking or available for work) in the population.
• Worker Population Ratio (WPR): WPR is defined as the percentage of employed persons in the population.
What is the significance of calculating LFPR?
• 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 used for understanding the labour market behaviour of different categories of the population.
• 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
• 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, returning – but at a lower rate – to economically active life when the children are older.
Why LFPR matters in India?
Typically, policymakers and the general public is focussed on the unemployment rate in the economy. The unemployment rate is the share of people who are unemployed despite looking for work. If the proportion of people looking for work is high and stable, then the unemployment rate is a good way to assess the stress in the job market.
But in India’s case, the unemployment rate is an inadequate measure because India’s LFPR (or the proportion asking for a job) has not only been lower than the global average but also falling.
A low and falling LFPR is never a good sign for a developing economy because it shows that, despite low levels of income, its workers are opting out of the jobs market.
Typically, this happens when workers fail to get a job for long periods of time, get discouraged and decide to sit out of the labour force.
Present Status
According to the latest data available from the Centre for Monitoring Indian Economy (CMIE), India’s labour force participation rate (LFPR) fell to 39.5 per cent in the last financial year (2022-23) that ended in March. This is the lowest LFPR reading since 2016-17.
The LFPR for men stood at a seven-year low of 66 per cent while that of women was pegged at a mere 8.8 per cent. In other words, of all the Indians aged 15 years and above, only 39.5 per cent are even asking for a job. Among men, this proportion was 66 per cent and among women, just 8.8 per cent.
Trend Analysis
India:
o The LFPR has been falling in a secular manner since 2016-17 and has hit its lowest in 2022-23. It is noteworthy that the fall has happened despite the fast growth rate of the economy. For instance, the GDP grew by 7.2 per cent in 2022-23.
o India’s female LFPR has fallen to just 8.8 per cent in FY23. In other words, more than 90 per cent of all working-age women in India don’t even look for a job.
Global:
CMIE admits that its measure of assessing LFPR are more stringent than others. For instance, the International Labour Organization (ILO) pegged India’s LFPR at 49 per cent for 2022 — distinctly higher than CMIE’s 40 per cent for 2022. However, even by ILO’s standards, India’s LFPR lagged far behind other countries. According to CMIE, India’s LPR is woefully low when compared to some Latin American and Asian economies that boast far higher labour participation rates as estimated by the same ILO model.
In Indonesia, for instance, around 67 per cent of the working-age population entered the labour force in 2022 in search of employment.
In countries like South Korea and Brazil, the labour participation rates were as high as 63-64 per cent. Argentina, Bangladesh and the Philippines recorded LPRs in the 58-60 per cent range. Over 51 per cent of the population of Sri Lanka was in the labour force in 2022.
In India, on the contrary, less than half the working-age population had a job or was even willing to seek employment.
