This posting addresses the fastest growing US labor category known as Not-in-Labor-Force.  Highlights include:

• 89 million people are now in an official government labor category called Not-in-Labor-Force (NiLF).  NiLF people can work but chose not to work.
• By 2020, given current trends, those in the NiLF will outnumber all the people in the private sector work force.  The US economy cannot sustain the overhead of people that can but do not work.
• Sooner or later, the American people will figure out that the current way our government calculates unemployment is seriously flawed.  Under the current system it is theoretically possible for the US to have a zero rate of unemployment while simultaneously having zero people employed in the labor force.

According to the US Department of Labor’s Bureau of Labor Statistics (BLS)[1] with jobs are “employed”, people who do not have jobs and are looking for jobs are “unemployed”, and people who are able to work but choose not to work are “not in labor force”. The BLS reports that Not-in-Labor-Force consists mainly of postsecondary school students, homemakers, retired, active duty military, those confined to institutions such as nursing homes and prisons, and those who have no job and are not looking for one (e.g., welfare recipients).

Not-in-Labor-Force is the second largest and fastest growing of the five segments of the US labor force.

Non-Working Population:

1. Not-in-Labor-Force (can work but not looking): 89 million

2. Cannot Work Force (children, disabled, etc.): 76 million

3. Unemployed Labor Force (looking for work):  22 million

Working Population:

1. Private Sector Labor Force: 111 million

2. Government Labor Force (federal, state, local): 25 million

As of 1 May 2012, 88,879,000 were in the NiLF.  As shown above, over the last dozen years, NiLF has grown by 27% (growth rate of 2.3% per year) compared to 0% growth in the private sector labor force.

In the last 12 months, a period where the US economy showed positive signs of recovery, over 2.6 million more people[2] joined the ranks of the NiLF—an increase of 3.0%.   If these recent trends continue, NiLF will exceed the private sector labor force by year 2020.  Equally alarming, the BLS reports that 93% of the people in the NiLF currently do not want and are not looking for a job.

It is imperative that the current upward growth in NiLF be reversed and the private sector labor force expanded in order for America to prosper. Today, 29% of the American people in the private sector labor force have to financially support, via taxes or familial obligations, the 81% who are in the non-working population or work for the government.   Millions of small businesses are the only sensible way to increase America’s private sector—the US economy’s breadwinner.  Since the beginning of this decade, small business produced 95% of all new private sector jobs (see Employment Scoreboard).  The Jobenomics goal is to create 20 million new private sector jobs by 2020 with emphasis on small, emerging and self-employed businesses.

The US government has a much more obtuse, confusing and benign way of calculating the working population versus the non-working population.  Their calculations are represented by the “Labor Force Participation Rate” (shown below).   The BLS’ Labor Force Participation Rate represents the number of workers (employed and unemployed looking for work) as a percentage of the so-called “Civilian Noninstitutional Population”.

As of 1 May 2012, the BLS’ Civilian Noninstitutional Population totaled 247,784,000 out of the total US population of 313,300,000 people.  247,784,000 represents the total number of employed (111M private sector, 25M government), unemployed (22M) and NiLF (89M).   The 76 million citizens that cannot work (children, disabled, etc.) are not included in the Civilian Noninstitutional Population.  Today, 154,365,000 people are officially in the labor pool (everyone except the 89M in the NiLF) of 247,784,000 people, which produces a Labor Force Participation Rate of 63.6%.

As shown by the Labor Force Participation Rate graph, the number of working people has decreased steadily as a percentage of the total people that can work to a low not see since 1981.   While the Great Recession in 2008/09 exacerbated the situation, the decline started in the boom years of the early 2000s.  The primary reason for the dramatic drop is largely due to those that simply have quit looking for work and are now categorized as Not-in-Labor-Force.

From a Jobenomics perspective, the BLS’ NiLF numbers should be combined with the BLS’s Total Unemployed (U6) number for a more accurate picture of idled workers.  The American public needs a broader measure of the “functionally unemployed”.   If the 89M NiLF and the 22M unemployed were combined, the total number of functionally unemployed would be 111 million Americans for a functionally-unemployed rate of 35%.

Sooner or later, the American people will figure out that the current way our government calculates unemployment is seriously flawed.  Under the current system, it is theoretically possible for the US to have a zero rate of unemployment while simultaneously having zero people employed in the labor force.  Stated another way, since NiLF workers are not counted as unemployed, the official unemployment rate could theoretically be zero if all the current unemployed people simply quit looking for work and joined those in the NiLF.

Not-in-Labor-Force demographics are shown below.

In terms of age, Not-in-Labor-Force includes 47 million people 55 years or older (53%), 23 million 25 to 54 year olds, and 18 million 16 to 24 year olds.  In terms of gender, Not-in-Labor-Force includes 53.4 million women (60%) and 35.5 million men (40%).

Prospects for future employment for the 47 million NiLF people aged 55+ is very dim.  Prior to the Great Recession of 2008, approximately half of the baby-boomer generation had sufficient funds (mainly equity in their homes, stocks and savings) to retire.  Today, it is estimated that less than 10% percentage have sufficient funds to retire since the value of their home is much lower, and many nearing retirement exited the stock market at its low point.  Consequently, a significant number of baby-boomers are facing a conundrum of needing to work with few available jobs.

Prospects for employment for the 41 million Not-in-Labor-Force people aged 16 to 54 has improved slightly in the last several months but is still three times harder finding a job than it was a decade according to BLS Unemployment and Jobs Openings and Labor Turnover (JOLT[2]) surveys.

In December 2001, BLS data indicates that there were 1.1 unemployed workers for every job opening.  At the height of the Great Recession, the peak reached 6.4.  Today 3.4 unemployed workers compete for every job opening.  It is important to realize that this is calculated on the “officially” unemployed number (12.5 million as of 1 May 2012).  If the Jobenomics functionally unemployed number of 111 million (the combination of the BLS’s 89M NiLF and 22M Total Unemployed) were included, 30 workers would have to compete for every opening.  Consequently, with odds like this, it is understandable why many people Not-in-Labor-Force have simply given up looking for work.

The BLS states that NiLF consists mainly of students, homemakers, retired, active duty military, institutionally confined, and those who have no job and are not looking for one).  Unfortunately, little data is provided the magnitude in each of these groups.

Anecdotally, one can conclude that the majority of the people are entitlement and welfare recipients.  The fact that 45 million Americans accept food stamps (Supplemental Nutrition Assistance Program or SNAP) is antidotal evidence that the welfare pool is quite large.  According to the US Department of Agriculture[3], “in fiscal year 2011, on average, SNAP provided $134 per person to 44.7 million individuals in 21.1 million households each month.”  In addition to food stamps, the NiLF are major recipients of social security (51 million), Medicare (45 million), Medicaid (59 million), and unemployment benefits (8 million).

The second largest NiLF is postsecondary school students which number 21,588,124 in the fall of 2010 (19M undergraduate and 3M graduate), according to the US Department of Education[4].  The US has approximately 7200 Title IV postsecondary institutions including community colleges and universities.  Title IV institutions have a written agreement with the Department of Education that allows the institution to participate in federal student financial assistance programs.  The Department of Education also reports[5] that 82% of first-time undergraduate students received financial aid from the government.  3 million more students are enrolled today than were just prior to the Great Recession in 2007.  Many students enroll to enhance their prospects of getting a job or in lieu of having a job.  While Jobenomics endorses the value of a good education, one has to be concerned that jobs have to be available for postsecondary school graduates as well as the spiraling costs of postsecondary tuition.

Unemployment rates for recent college graduates are roughly equal to the national unemployment rate of 9%.  So, getting a degree does not necessarily guarantee a job or a good salary.

According to the Georgetown Hard Times: College Majors Unemployment and Earnings: Not All College Degrees Are Created Equal[6] study states that the risk of unemployment among recent college graduates depends largely on their major. Unemployment/ earnings figures for recent health, engineering and arts graduates are 5.4%/$43,000, 7.5%/$55,000 and 11.1%/$30,000 respectively. While the Georgetown study endorses a college education, it cautions students to seriously weigh the benefits verses the costs.

Today, the average student loan debt is $25,000, but with rising tuitions $50,000 is a more reasonable figure for future graduates. Many students have a liaise faire about paying off loans or expecting loan forgiveness.  The phenomenon of compound interest works on student loans.  Unpaid $25,000 loans can compound to double or triple the original amount.  For those expecting a federal government loan forgiveness program, forget it.  Outstanding student loans now top $1 trillion, exceeding the total amount of credit card debt. Given the $15 trillion national debt, lawmakers are unlikely to forgive much.

The third major group is homemakers—mostly women.  There are various estimates of the number of American homemakers but the general estimates ranges from 15 to 25 million.

Active duty military and incarcerated prisoners are the next largest categories, but are significantly smaller in size in comparisons to the groups discussed above.  According to the 2012 Congressional Authorizations[7], active duty end strengths are 1.4 million personnel.   According to the US Department of Justice[8] state and federal correctional authorities had jurisdiction over 1,612,395 prisoners as of the beginning of 2011 (latest data available as of Feb 2012).

In conclusion, NiLF is a major problem for America.  It is a problem that has largely hid in the shadows.  As more and more Americans become aware of the ramifications of the non-working population overpowering the working population, solutions will have to be found.  Jobenomics goal of 20 million new private sector jobs by year 2020 may be as good a place to start as any.