The unemployment rate is not, as many people believe, the percentage of people who are out of work. Rather, it is the percentage of the labor force that is jobless. The labor force includes people who are working and people who are looking for work, but it does not include all people, or even all working-age adults. Consequently, the unemployment rate doesn’t send a clear message about our local labor market unless we know the participation rate, too.

Source: American Community Survey

As an example of why the participation rate matters, consider two hypothetical towns: Boom and Bust. For easy figuring, let’s say each town has 1,000 adult residents. Boom has a growing economy and Bust has been depressed for several years. Boom offers plenty of opportunity and 90 percent of the adults (900) are in the job market. Only 5 percent (0.05 x 900 = 45) are unemployed. That would mean 855 people working and 145 not working (45 who are counted as unemployed and 100 who are not in the labor force). People in Bust are discouraged, and only 700 adults are in the labor force. Five percent of them are unemployed (0.05 x 700 = 35). The 300 who are not considered part of the labor force can’t find jobs, but they are not considered unemployed because they’ve stopped looking. In Bust, 665 people are working and 335 (35 unemployed and 300 not in the labor force) are not. The unemployment rate in both towns is the same, but the conditions are very different. Clearly, the unemployment rate doesn’t tell the story of these two towns. And the same is true for real circumstances.

Out of Indianapolis’ total population aged 16 and older, 70.4 percent are in the labor force. That is higher than the participation rates for the U.S. and for Indiana, and nearly identical to the Central Indiana rate of 70.6. A high participation rate is a good thing, showing that people are confident in the supply of jobs. High participation coupled with low unemployment (as is the case in Indianapolis) means people expect jobs and are finding them.

The chart shows variety among the four largest categories of adults. Labor force participation is highest for married men and lowest for married women. Single men and women are in the labor force at similar rates.

Indianapolis rates near the top among the peer cities for labor force participation. Only Grand Rapids (71.9 percent) and Minneapolis (73.8 percent) are higher. Columbus is nearest to Indianapolis with 69.9 percent participation. Detroit has the lowest participation rate (61.9 percent).

There are several reasons why a person might opt out of the labor force, and not all of them are bad. Most college students are not labor force participants, for example, and neither are retirees. A majority of married women with young children still prefer to stay home for a matter of months or years. And there are a few people, even in Indiana, with sufficient investments or inheritance to make earned income unnecessary.