The best news for Government is that the unemployment rate is steadily falling from 7.9 % in 2015 to 7.1% in 2017 – a big drop indeed.

But a detailed analysis of the labour indicators reveals something more complex. For example, over the period 2015-2017, the net creation of employment was 14,200 which compares unfavourably with the previous three-year period (2012-2014) which registered a net creation of 25,000. In terms of employment growth, the annual average growth was marginally higher in the later period at 1.0% to the 0.8% of the more recent period.  Moreover, out of the 14,200 of net creation of employment over 2015 to 2017, some 3,600 were in general government, mainly in public administration and the health sector. Interestingly, a further breakdown of employment creation by gender shows that the present government is finding it difficult to find jobs for men as unemployment among men increased from 16.900 in 2016 to 17,200 in 2017 while among women, the unemployed decreased by 900 to 24,600.

Is the reason that the unemployment rate has come down due to a shrinking work force?

Essentially, the unemployment rate is derived using the employment level in and outside large establishments (how many people have jobs) and the size of the Labour Force (how many people could have jobs).

The unemployment rate : [1-(Employment/labour force]*100.

There are two ways that the unemployment rate could fall: the total level of net creation of employment could rise or the labour force could fall. As we have seen, employment creation has not been above average, so it is more likely that it is the fall in the labour force that accounts for the fall in employment rate.

We can confirm this by examining the activity rate or the labour force participation rate which is simply the size of the labour force divided by the population of 16 years and above. The activity rate has fallen from 60.4 percent in 2015 to 59.6 percent in 2017.

Labour Indicators (%)

Year Labour force growth Employment growth Unemployment rate Activity rate
2012 -0.6 -0.7 8.0 58.8
2013 1.4 1.1 8.0 59.9
2014 2.7 2.7 7.8 59.9
2015 0.8 1.0 7.9 60.4
2016 1.5 1.4 7.3 59.6
2017 -0.6 0.1 7.1 59.6

To nullify the effect of the activity rate, we assume that participation rate was the same today as it was in 2015, that is 60.4., what would the unemployment rate look like?

The labour force would then be 594,800. (0.604 x the present population of 16 years and above (984.7)) And the 2017 employment level is 545,100.  The unemployment rate is thus [1-(545,100/594,800)]*100. That works out to 8.35 percent.

In other words, if the activity rate had remained constant over the 2015-2017 period, the 2017 unemployment rate would be 8.35 %. If there were the same number of people looking for work in 2017, as there were in 2015, the unemployment rate would have increased from 7.9 percent in 2015 to 8.35 percent in 2017. The main reason thus that the unemployment rate has come down is because of the lower activity rate due to demographics-the ageing workforce and more people going into retirement.