As a measure of labor market strength, the raw employment-to-population ratio (EPOP) confounds employment outcomes with labor supply behavior. Movement in the EPOP depends on the relative movements of the employment rate (one minus the unemployment rate) and the labor force participation rate. This paper proposes an adjustment to the calculation of the EPOP using individual microdata to account for both individual characteristics and the probability of labor force participation, which can used to assess the strength of the labor market.
JEL classification: J64, J21, J11
Key words: EPOP, employment-to-population ratio, labor force participation, unemployment rate, employment rate, structural versus cyclical
The author gratefully acknowledges comments from Christopher Cunningham, Timothy Dunne, Patrick Higgins, M. Melinda Pitts, and John C. Robertson. Yanling Qi provided excellent research assistance. The views expressed here are the author's and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author's responsibility.
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