Employment-To-Population Ratio

What is the 'Employment-To-Population Ratio'

The employment-to-population ratio is a macroeconomic statistic that indicates the ratio of the labor force currently employed to the total working-age population of a region, municipality or country. It is calculated by dividing the number of people employed by the total number of people of working age. For example, if 50 million people are employed in an area with 75 million people of working age, the employment-to-population ratio is 66.7%. Calculated by:

Employment-To-Population Ratio

BREAKING DOWN 'Employment-To-Population Ratio'

Compared to other metrics, the employment-to-population ratio is not as affected by seasonal variations or short-term fluctuations in the labor market. As a result, it is often considered to be a more reliable indicator of job shrinkage or growth than the unemployment number in particular.

Limitations of the Employment-to-Population Ratio

The employment-to-population ratio does not include the institutionalized population, such as people in mental hospitals and prisons, as well as people in school, studying for a career. It also doesn't take into account black market labor, an absence that makes the ratio seem lower than it should be.

The employment-to-population ratio also fails to account for people who are over or under the working age but are still working. These workers may be counted in the employed part of the ratio but may not be included in the total number of people of working age, meaning their employment inaccurately increases the ratio. Additionally, the number of hours worked are not taken into account, and as a result, the ratio does not discriminate between part-time and full-time workers.

How the Employment-to-Population Ratio Compares to the Unemployment Rate

Surprisingly, the employment-to-population ratio does not directly relate to unemployment figures. For example, in October 2014, the employment-to-population ratio was 59.5%, but the unemployment rate was only 3.5%. Together, these numbers only account for 63% of the population, raising the question of what happened to the other third of the population.

The discrepancy between these two numbers exists because the unemployment number does not indicate the number of people without employment. It only indicates the number of unemployed people who are looking for jobs.

For example, people who have retired early and people who have decided to go back to school to further their job prospects are not taken into account in the unemployment figure. However, their absence from the workforce is nodded to in the employment-to-population ratio. In addition, people who really want a job but have given up on the quest to find one are also not included in the nation's unemployment number.