The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force. During periods of recession, an economy usually experiences a relatively high unemployment rate. The labor force participation rate tells us which percentage of the entire working age population is economically active in the other words; it tells us which percentage of the people capable of working are actually working or at least looking for a job. Let’s assume you live in a country with 10 million working age people, we will also assume five million are currently working and 500000 are actively looking for work so we have five million and a half million economically active people in this scenario. Labor force participation rate is 55%; the unemployment rate on the other hand tells us which of the total labor force is currently unemployed but actively looking for work. To figure out how many people are jobless but actively looking for work? The authorities figure out how many people are receiving unemployment benefits and other forms of help and one hand and the other hand they also analyze data from unemployment offices to measure how many people are making an effort to find a job. So in a previously mentioned scenario with a labor force with 10 million and 500000 people who are looking for a job, the unemployment rate is 5%. Therefore unemployment rate alone can sometimes paints an overly optimistic picture, so the labor force parcipation rate complements it nicely together they help you accurately assess the heath of an economy.
