Employment-to-Population Ratio

What is the Employment-to-Population Ratio?

The employment-to-population ratio is a macroeconomic employment metric that shows the number of people employed as a percentage of the total working-age population. It is sometimes referenced as simply the employment-population ratio.

The employment-to-population ratio can be applied to any size area or region but is most commonly calculated for whole countries. The Organization for Economic Cooperation and Development (OECD) uses the employment-to-population ratio to assess the levels of employment in countries and for cross-country economic comparisons.

The ratio may be combined with other employment metrics, such as the unemployment rate, in order to obtain a fuller picture of the employment situation in a country, region, or province.

Inside the Metric – Formula

The employment-to-population ratio is a metric that does not typically fluctuate very much on a month-to-month basis but is responsive to changes in the overall health of the economy. For example, low readings in the employment-to-population ratio typically correspond to major economic downturns, and high readings go along with significant economic booms.

It is not always the case with other employment metrics, such as the unemployment rate, which, unlike the employment-to-population ratio, is significantly affected by voluntary changes in the levels of participation in the labor force.

The calculation of the employment-to-population ratio is a fairly simple one. The E-to-P figure is just the number of employed people divided by the total working-age population. So, the formula is as follows:

E-to-P Ratio = Total Number of Employed People / Total Working Age Population

Thus, if there are 300 million people employed out of a total working-age population of 400 million, then the employment-to-population ratio is 75, or 75%.

The key to the calculation of the ratio is the definition of the working-age population. While the legal working age varies from country to country, and less developed countries tend to report a lower starting age for participation in the workforce, for the sake of convenience when doing cross-country comparisons, the legal working age is usually considered to be 16. The upper boundary of the working-age population is generally denoted as 64.

The employment-to-population ratio is aimed at measuring private-sector employment. Therefore, typically excluded from the ratio are military and other government employees. The calculation also does not include full-time students studying for a degree, people who have retired early, or participants in the labor black market, such as illegal immigrants who are often employed and paid “off the books.”

One weakness of the employment-to-population ratio is that it considers being “employed” as basically anyone who has been paid for any amount of work during a given week. It, therefore, fails to draw any distinction between those who are employed full-time and people who are just barely employed at all, such as someone paid for only a couple of hours of work each week.

Employment-to-Population Ratios Across the Globe

Generally speaking, countries with the highest employment-to-population ratio show a metric above 70, while countries with the relatively lowest employment levels report a ratio reading below 50. As of 2020, the countries with the highest employment-to-population ratios are primarily in the East Asia & Pacific region, with ratios ranging from the mid-60s to the mid-80s.

Many of the countries with relatively low ratios, from the 50s down into the 30s, are found in North Africa and the Middle East. Canada, the United Kingdom, Germany, and the United States all demonstrate employment-to-population ratios around the middle of the total range, that is, around 60.

The employment-to-population ratio can be calculated separately for various population groups, such as men and women. Although historically, the ratio has been consistently higher for men than it is for women, the most recent figures show the ratio declining for men while rising for women.

Comparison with Unemployment Rate

A popular employment metric used in many countries is the unemployment rate, which reflects the percentage of people in the labor force who are currently unemployed but actively looking for work. The metric, which is obviously a measure of unemployment, stands in contrast to the employment-to-population ratio, which reflects how many people are employed, rather than how many are unemployed. Some countries calculate both metrics in order to get a more complete picture of the country’s employment situation.

One shortcoming in the unemployment rate metric, as compared to the employment-population measure, stems from the fact that the unemployment rate does not include people who were formerly members of the labor force, but who have become so discouraged in their search for employment that they have given up looking for work. When that segment of the population significantly increases, the unemployment rate figure becomes a significantly less accurate depiction of the true state of the labor market.

The factor became an increasing concern following the 2008 Global Financial Crisis, as large numbers of people left the labor force. In the U.S., while the federal government was touting an improving unemployment rate, critics were pointing out that the official rate did not reflect the masses of people who had simply given up on finding a job. In short, the official unemployment rate numbers were painting an overly rosy picture of economic recovery.

In contrast, the employment-to-population ratio calculation does reveal any significant increase – or decrease – in the number of people who have chosen to leave the labor force.

Keep Learning

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