Taxation of the civilian populace is one of the main providers of income to an Empire nation (gold bars in banks, trade ships, and taxes from uws being the only other sources of income in the game). Also, only friendly civilians can be enlisted into the army, navy and air force.
The willingness of the civilian population to work is initially 100% -- that is, all of the people are working. In the event that the sector starves or falls victim to revolutionary subversion, the work of the sector will decrease. This will be shown by the work % decreasing. During the update, the work % is influenced by the loyalty of the sector.
If people starve in a sector, the amount of work they do drops to 0 (because they are too weak to work).
The loyalty of a sector is a hidden value, which represents how loyal the citizens in the sector are to your country. Initially the disloyalty is set to 0. When a sector is captured the disloyalty is set to 50. Besides from influencing the work % of a sector, the loyalty influences the chances on revolts, che in general and whether civilians will report to your army when enlisting reserves. Loyalty changes during the update by happiness or lack thereof. When retaking a sector you are the old owner of, the disloyalty in the sector will be 0 again. If the people in the sector had to fight for it themselves in a revolt, some disloyalty will remain. If the occupation force of a sector is too small, or if the sector starves, disloyalty will increase.
If a sector is a conquered sector, the old owner will be shown in the appropriate column on the census report. Friendly sectors allow enlistment of military, as well as the ability to move the civilians freely about. Occupied civilians will not move, and friendly civilians cannot enter these sectors. In addition, occupied civilians will not serve in the armed forces.
If the thought of not being able to move conquered populace bothers you, then you have the option of converting these conquered people into uncompensated workers, involving the expenditure of BTUs and money (for the paperwork). If all the conquered people in one sector are converted to uw's, then the sector is then marked as yours.
If the people in a sector are unhappy (due to starvation, subversion, or lack of happiness) they can go on strike and cease working. You can get them back to work by heavy-handed military control (placing one military for each 20 striking civilians).
Finally, your populace requires happiness to keep their enthusiasm for work going. As technology and education increase, your work force expects to share in the increased levels by getting more consumer items (VCRs, BMWs, etc) represented by happy strollers. If you don't have at least one happiness point per two units of education, and a point for each forty units of tech, your people will not be happy.
See also : attack , Happiness , Populace , Occupation