Understanding the Employment Rate Formula (And Its Benefits)

By Indeed Editorial Team

Published June 10, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

There are many factors to consider when deciding to find a new job or helping to expand an existing business. Evaluating the employment rate of an area can provide important metrics about a location in consideration. Using the employment rate of a region with other labour statistics can help you determine the economic health of a region and establish how well a business may perform or how easy it may be to get a job. In this article, we explain the employment rate formula, discuss how to calculate it, list its benefits, and review some related labour statistics.

What is the employment rate formula?

The employment rate formula is a mathematical way to help you determine the percent of potentially employed people in a given location. Politicians, business owners, and economists usually measure this rate over a certain period for a specific geographic region, such as a city, province, territory, or country. The calculations for the employment rate omit individuals under 16 or over 64 years old, full-time students, people with limitations that prevent working, and institutionalized individuals. The rate takes the number of employed individuals and compares it to the total available labour force. Here is the formula for calculating the percentage:

Employment rate = (Number of employed individuals / Total labour force) × 100

Related: How to Calculate Growth Rate (With Formulas and Examples)

How to use the employment rate formula

You may want to calculate the employment rate if you're researching relative economic health, making long-term plans, or looking to move to a new area. Here are the steps you can use to establish the employment rate of a specific region:

1. Determine the potential labour pool

Determine the region and time frame that reflects the population you're interested in studying. In most cases, federal agencies maintain this publicly available information on their websites, which tend to contain information from the most recent census or population survey. Depending on the region you're researching, you may also find detailed information from local government sources. You can calculate the labour force of a region by adding the number of employed people in the area to the number of unemployed individuals. Here's an example:

A reporter wants to know how the employment rate has changed over the past six months in a particular city. They look for labour force information from Statistics Canada and find that the total labour force has grown from 2,276,700 to 2,409,500, showing an increase of 132,800 people.

Labour force = Number of employed + Number of unemployed

2. Calculate the employment rate as a decimal

To calculate the raw employment rate, you can first determine how many employed people live in the region you're investigating. You can usually find this information in the same place as the total labour force information. It's important to ensure that the employment information covers the same dates and geographic area as your total labour force data. You can divide the number of employed people by the total labour force. This produces a decimal value between 0 and 1. Here's the formula for this step, followed by an example to consider:

Employment rate as a decimal = Number of employed people / Total labour force

The reporter calculating the employment rate investigates and discovers that the number of employed people over the last six months increased from 1,930,900 to 2,207,200. By using the above formula, they determine that the employment rate in decimal form is 0.85 and 0.92.

3. Calculate the employment rate percentage

You can calculate the employment rate percentage by multiplying the employment rate in decimal form from the last step by 100. Analyzing the employment rate as a percentage can help you better understand and compare places with different populations more easily. Here's the formula for this step, followed by a continuation of the example:

Employment rate as a percentage = Employment rate as a decimal × 100

The reporter determines that the employment rate was 85% six months ago and 92% at the time of their study. These numbers show an employment rate increase of 7% over six months.

Related: How to Calculate Inflation Rate (With Examples)

Benefits of calculating the employment rate

Here are some benefits of calculating and using the employment rate:

Provides important information for business decisions

Companies of different sizes may consider the employment rate when making business decisions, such as how to hire, where to place a distribution centre, or where to start a new store. Understanding the labour market, including any regional and demographic trends, can also inform the training decisions of a current workforce within an organization. When the employment rate is lower, a business might be more eager to hire because they're likely to receive more applications for their open positions. This practice gives hiring managers more candidates to choose from, increasing the likelihood of finding the right one for the position.

A business that wants to expand into new retail locations may choose a location where the employment rate is higher. A higher employment rate can be appealing because the more employed people there are in an area, the more money they typically have available to spend. Conversely, if the business wants to build a factory or distribution centre, they may consider a region with a lower employment rate. A lower employment rate might make it easier for the business to find new employees.

Provides context for your job search

Labour market information such as employment rate can help you plan your career and better understand the employment landscape. Researching the employment rate of a region can help you discover the economic factors that may influence your job search.

For example, if the employment rate is low all over the country, this may indicate that more candidates are applying for each job. If this is the case, you may need a stronger resume and application to appeal to hiring managers. Further, if the employment rate is low in your area but high in a nearby region, that may indicate that the other region has better economic health. In this instance, you might consider moving or commuting to that area to work.

Related: 14 Job Search Tips to Help You Find the Right Job

Enables greater economic understanding

Learning about the employment rate and other economic properties can help you understand how employment relates to other economic health indicators. A higher employment rate may indicate increased economic spending, as more people are making money. Understanding different labour calculations can help you better understand how trends and recessions affect various industries or regions. Whether you're studying economics, applying for a job, or researching regional growth, the employment rate can help you determine an area's economic viability.

Informs government budgets and decisions

The employment rate usually provides essential information about the economy and informs many government decisions. Public agencies often include this information in news releases, and the media may use it to explain economic health or government budgets. Government officials are often particularly interested in tracking the employment rate because when the rate is high, they typically collect more income tax, which affects provincial and federal budgets. Further, a higher employment rate can also signify a decrease in the need for government unemployment funds.

Other labour statistics related to the employment rate

The employment rate is one of several simple calculations that you can use to understand and assess the health of a certain area. By considering multiple factors and rates, you can better understand the economic health of a particular region. Evaluating these statistics over time can demonstrate whether a region's workforce is increasing or decreasing relative to the increase or decrease in population. Economists, statisticians, and politicians look at these figures in percentages or ratios to better understand the relationship these numbers have with each area's population or total labour force.

Here are examples of important labour statistics and what they describe:

  • Unemployment rate: The unemployment rate evaluates those temporarily not looking for work and those actively seeking work. Some unemployment calculations may also include those who are underemployed if they're working part-time but want more hours.

  • Labour force participation rate: This rate is an estimate of an economy's active workforce. It considers those who intend to work rather than those who currently work. It evaluates working-age employed individuals or those actively looking for a job and compares that number to the working-age population.

  • Employment-to-population ratio: This ratio is a broad metric of labour unemployment that compares the number of employed individuals to the total population. Economists calculate this ratio by dividing the number of people employed by the total number of working-age people in a region.

Please note that none of the companies, institutions, or organizations mentioned in this article are affiliated with Indeed.

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