Thanks to colleague David Parr for this graphic from the Washington Post. Unemployment measures those that are actively seeking work. There are 4 ways you can be taken off the unemployment register:
1. Get a job
2. Reached retirement age,
3. Become unmotivated or discouraged
4. Work illegally (cash jobs – hidden economy)
The yellow line on the left shows the official unemployment rate since 2008. It’s fallen from over 10 percent to under 8 percent. But the red line on the right shows the actual employment rate which has not really changed at all.
Notice from the figures that the reduction in unemployment hasn’t seen an increase in employment. That means a lot of the people who’ve left the labour force haven’t acquired a new job. They’ve just left the labour force altogether.
Some of that’s natural. The population is aging, and the labour force was expected to shrink. But it wasn’t expected to shrink this much. The economy is a lot worse than a glance at the unemployment rate suggests.