Employed

What Is Employed?

To be employed signifies the condition in which an individual is actively engaged in productive work, typically in exchange for wages, salary, or other forms of compensation. This fundamental concept is central to labor economics, providing a key metric for understanding the health and performance of an economy. The Bureau of Labor Statistics (BLS) in the United States, for instance, defines employed persons as those who, during a specific survey reference week, did any work for pay or profit, worked at least 15 hours as an unpaid worker in a family-owned enterprise, or were temporarily absent from their jobs due to illness, vacation, or other reasons, regardless of whether they were paid for the time off.⁹,⁸

Measuring the number of employed individuals is a crucial component of tracking economic indicators and assessing the overall labor force. An increase in the number of employed persons generally signals economic expansion, while a decrease often points to a contraction.

History and Origin

The systematic measurement of employment and labor market statistics gained prominence in the 20th century, particularly following periods of significant economic upheaval like the Great Depression. Governments recognized the need for accurate data to inform policy decisions aimed at promoting stability and growth. In the United States, the establishment of the Bureau of Labor Statistics (BLS) in 1884 laid the groundwork for comprehensive labor data collection, though the Current Population Survey (CPS), which provides much of the employment data, was initiated later.

The concept of "maximum employment" as a policy goal became a cornerstone of macroeconomic management, notably enshrined in the mandates of central banks such as the U.S. Federal Reserve. The Federal Reserve operates under a "dual mandate" from Congress to promote effectively the goals of maximum employment and stable prices.⁷ This commitment reflects a broad understanding that high levels of employment are essential for sustainable economic growth and societal well-being, influencing approaches to monetary policy.

Key Takeaways

• Employed Definition: Refers to individuals actively working for pay or profit, including self-employment and some unpaid family work, or those temporarily absent from their jobs.
• Economic Health Indicator: The number of employed persons is a primary gauge of an economy's performance and growth trajectory.
• Policy Relevance: Employment statistics are vital for policymakers, particularly central banks and governments, in formulating monetary and fiscal policy aimed at achieving economic stability and full employment.
• Labor Market Dynamics: Changes in the employed population reflect shifts in supply and demand within the labor market, influencing factors like wage growth and consumer activity.

Formula and Calculation

While "employed" refers to a status rather than a calculated value in isolation, it is a key component of several important labor force ratios. One widely cited metric that uses the number of employed individuals is the Employment-Population Ratio. This ratio expresses the number of employed persons as a percentage of the civilian noninstitutional population (individuals 16 years of age and older not in institutions like prisons or nursing homes, and not in the armed forces).

The formula for the Employment-Population Ratio is:

Where:

• Number of Employed Persons represents the total count of individuals meeting the definition of employed.
• Civilian Noninstitutional Population refers to the total population aged 16 and over, excluding those in institutions and the armed forces.

Interpreting the Employed

Interpreting the number of employed individuals and related statistics involves understanding broader economic contexts and trends. A rising number of employed persons, especially alongside a declining unemployment rate, typically indicates a strong economy characterized by increasing production and consumption. Conversely, a falling number of employed individuals signals economic contraction or recession.

Analysts often look at the employment-population ratio to assess the economy's ability to create jobs for its working-age population, independent of changes in the size of the labor force. A higher ratio generally suggests a more robust labor market where a larger proportion of the population is actively contributing to Gross Domestic Product. These figures are crucial for understanding the current phase of the business cycle.

Hypothetical Example

Consider the fictional country of Economia. In January, Economia's statistical agency reports 150 million people employed. By February, due to a surge in consumer demand and business expansion, an additional 2 million people find jobs, bringing the total number of employed to 152 million. This increase suggests positive economic momentum.

If, for instance, a major tech company opens a new factory, creating 50,000 new positions, these individuals, upon starting work, become part of the employed population. This directly boosts the number of employed persons and contributes to overall consumer spending as these newly employed individuals earn income.

Practical Applications

The concept of employed and related data has several practical applications across finance, economics, and policy:

• Monetary Policy Decisions: Central banks, such as the Federal Reserve, closely monitor employment data, including the number of employed individuals, as a key input for setting monetary policy. The goal of maximum employment is explicitly part of the Federal Reserve's dual mandate.⁶
• Fiscal Policy Formulation: Governments use employment statistics to inform fiscal policy decisions, such as stimulus packages or unemployment benefits, aimed at stabilizing the labor market and supporting economic growth.
• Investment Analysis: Investors analyze employment trends to gauge economic health, which can influence investment decisions across various asset classes. Strong employment often correlates with higher corporate earnings and overall market confidence.
• Labor Market Analysis: Economists and policymakers utilize employment data to identify trends in job creation, sector-specific performance, and shifts in wage growth. Organizations like the OECD provide extensive research and data on employment and labor market policies across countries.⁵

Limitations and Criticisms

While highly valuable, employment statistics and the definition of "employed" have certain limitations and face criticisms:

• Quality of Employment: The simple count of employed individuals does not differentiate between full-time and part-time work, or the quality of jobs. An increase in part-time or low-wage positions might boost the number of employed but may not reflect a robust improvement in overall economic well-being or productivity.
• Underemployment: The "employed" category can include individuals who are underemployed—working fewer hours than they desire or in jobs that do not fully utilize their skills (human capital). These individuals are technically employed but represent untapped potential.
• Informal Economy: In many economies, a significant portion of work occurs in the informal sector, which may not be fully captured by official employment surveys. This can lead to an underestimation of the true number of employed persons.
• Lagging Indicator: While payroll employment is a key indicator for dating business cycles, it can sometimes lag other economic indicators, meaning it may continue to decline even as a recession officially ends, or continue to rise as a peak approaches. The National Bureau of Economic Research (NBER), which dates U.S. business cycles, considers various factors beyond just employment for its determinations., ⁴T³he Federal Reserve also acknowledges that maximum employment is influenced by non-monetary factors and that assessments are subject to revision.

²## Employed vs. Unemployed

The terms "employed" and "unemployed" represent the two primary classifications within the labor force, and they are often confused or seen as direct opposites, though the distinction is more nuanced than simply "having a job" versus "not having a job."

• Employed: An individual is considered employed if they worked for pay or profit during a specific reference period, or worked a minimum number of hours as an unpaid worker in a family business, or were temporarily absent from a job. This definition focuses on active engagement in work.
• Unemployed: An individual is classified as unemployed if they are without a job, have actively looked for work in the prior four weeks, and are currently available for work. The key here is the active job search component. Someone not working but not actively seeking employment is typically categorized as "not in the labor force," rather than unemployed.

Therefore, the main difference lies in the activity of seeking work for those without a job. An increase in the number of employed persons typically corresponds with a decrease in the unemployment rate, signaling a strengthening labor market.

FAQs

What does "employed" mean in economics?

In economics, "employed" refers to individuals who are working for pay or profit, including self-employment, or working in a family business without pay for a certain number of hours, or those temporarily away from their jobs due to various reasons like vacation or illness. It is a fundamental measure of labor market activity and economic growth.

How is the number of employed people measured?

Government statistical agencies, such as the Bureau of Labor Statistics (BLS) in the United States, conduct large-scale surveys of households and businesses. The Current Population Survey (CPS) is a key household survey that classifies individuals as employed, unemployed, or not in the labor force based on their activities during a specific reference week.

¹### Why is the number of employed persons important for the economy?
The number of employed persons is crucial because it indicates the level of productive activity in an economy. More people working generally means more goods and services are being produced, leading to higher national income and consumer spending. It's a vital metric for understanding economic strength and inflationary pressures.

Does being "employed" always mean having a good job?

Not necessarily. The definition of "employed" includes all types of paid work, regardless of hours, wages, or skill level. This means it encompasses full-time, part-time, temporary, and underemployed individuals. Therefore, a high number of employed persons doesn't always reflect a high quality of employment or the absence of underemployment.

How does employment relate to inflation?

Strong employment figures often accompany rising inflation. As more people are employed, demand for goods and services tends to increase, and competition for workers can lead to higher wages. Both factors can contribute to upward pressure on prices. Central banks monitor employment closely when making decisions about controlling inflation through monetary policy.