Jobenomics Employment Report: December 2014

Jobenomics Employment Report: December 2014

http://Jobenomics.com

By: Chuck Vollmer

12 December 2014

Jobenomics tracks both unemployment (see: Jobenomics Employment Scoreboard: December 2014) and employment (this posting). Download PDF versions at Jobenomics Employment Report - December 2014 and Jobenomics Unemployment Report - December 2014.

Executive Summary. According to the December 2014 Bureau of Labor Statistics (BLS) Employment Situation Summary[1], the unemployment rate remained at 5.8%, total nonfarm payroll employment rose by 321,000, and the “Not-in-Labor-Force” category increased by 69,000 citizens who quit looking for work, for a net gain of 252,000 people in the US labor force. Jobenomics rates the December BLS Employment Situation Summary as a strong report.

While America is making progress, the US labor force participation rate is now at a 37 year low. As shown above, almost three times as many people departed than entered the labor force since year 2000—many to a netherworld of perpetual unemployment and welfare. In addition to the 18 million unemployed (those looking for work), 92 million able-bodied Americans who can work are no longer looking with 93% reporting that they have no near-term plans to seek a job.

Today, out of a total population of 319 million Americans, the US has 110 million working in the private sector, 32 million government workers, 18 million unemployed, 92 million able-bodied people who can work but are not looking, and 69 million (mainly children, retired and disabled) who cannot work. The US economy cannot be sustained by 34% supporting an overhead of 66%. More people must be productively engaged in the private sector labor force for the US economy to flourish.

For six decades, the US produced 10.7 to 21.7 million new jobs per decade. Then the bottom fell out in the decade of the ‘00s with a loss of 1.2 million jobs. It is critical that significant numbers of jobs are created this decade (’10s) for the US economy to recover. 20 million new jobs by year 2020 is a reasonable goal that is supported by the Jobenomics National Grassroots Movement. Not only has 20 million been historically achieved, but is the number needed to accommodate 16 million new labor force entrants per decade and to reduce unemployment in order to achieve the so-called “full employment” rate of 5%. Based on this Jobenomics goal, the US should have produced 14.75 million jobs by 1 December 2014. We have produced 10.4 million, which is good overall but still a 30% shortfall from where we should be.

Jobenomics measures economic progress from the start of decade (1 January 2010), which is roughly a year after the Great Recession. From the beginning of this decade, the US private sector created 10,907,000 jobs and the public sector lost 549,000 jobs for a net gain of 10,358,000 jobs. Today, service-providing industries employ 70.6% of all Americans, the goods-producing industries employ 13.7% and government (federal, state and local) employs 15.7%. 82.4% of all new jobs this decade were produced by four service-providing industries: professional and business services; trade, transportation, utilities; education and health services; and leisure and hospitality.

The solution to growing the tax-base involves business creation with emphasis on small business that has created 73.6% of all new jobs this decade. Small businesses employ 77.4% of all private sector Americans with a total of 91.2 million employees—almost 5 times the amount of large corporations (1000+). Very small businesses with less than 19 employees employ 64% more than all large corporations combined (30.7M versus 18.6M). Contrary to popular opinion, 50% of all small business startups last five years and 30% remain in business over ten years. In addition, small business growth has outperformed medium and large businesses during the recovery from the Great Recession.

US Employment. Pre-recession peak employment occurred in January 2008 with 138.1 million employed. The Great Recession low occurred in February 2010 with 129.3 million employed.

Today, US employment reached a new peak of 140.0 million. In addition, the 8.7 million jobs lost during the Great Recession have been recovered. While this is very good news, employment growth has been anemic and much more needs to be done to ensure economic sustainment.

Today, 140.0 million Americans are employed in government and the private sector. 70.6% work in seven private sector service-providing industries. The seven service industries are: Professional and Business services, Education and Health services, Financial Activities, Trade/Transport/Utilities, Leisure and Hospitality, Financial Activities, Information, and Other services. 13.7% are employed in private sector goods-producing industries that include Manufacturing, Construction and Mining/Logging that includes oil and gas extraction. 15.7% Americans work for government at the federal, state and local levels.

While the US has enjoyed some employment growth since the beginning of this decade, America is only producing 70% (30% shortfall) as many jobs as needed. This shortfall is exacerbated by the fact that the US government and Federal Reserve have injected approximately $17 trillion into the US economy since the Great Recession with limited results. In other words, we should have much higher employment growth than we now have considering the staggering amounts of stimuli, monetary manipulation and cash infused into the economy.

The US produced only 10,358,000 jobs compared to the 14,750,000 jobs needed as measured against the traditional benchmark of 250,000 jobs per month (250,000 x 59 months = 14.75 million). Of the three employment sectors reported by the Bureau of Labor Statistics, the private sector’s service-providing industries created 9,449,000 jobs, the private sector’s goods-producing industries created 1,458,000 jobs, and the government sector lost 549,000 jobs with 66.8% (367,000) of all government jobs lost at the local level—mostly teachers, firefighters and police.

The 30-year trend in US employment has overwhelmingly been in the service-providing industries with a 30-year growth rate of 76%. Government has also grown significantly at a rate of 35%. However, as discussed in this posting, government employment has decreased in the last several years and is likely to continue to do so. US goods-producing industries have declined 19% during the last thirty years.

82.4% of all net new jobs this decade were produced by four industries (Professional and Business Services, Trade/Transportation/Utilities, Education and Health Services, and Leisure and Hospitality) in the service-providing sector. Manufacturing and Construction only contributed 6.8% and 4.0% to US employment growth, respectively. The non-internet information industries (such as publishing and news print) and government lost jobs this decade.

According to the most recent BLS Job Openings and Labor Survey[3], there were 4,762,000 job openings. This survey includes estimates of the number and rate of job openings, hires, and separations for the nonfarm sector by industry and by geographic region. As shown above, the four occupations that had the largest number of openings are: Professional & Business Services (918,000), Healthcare (800,000), Retail & Wholesale Trade (753,000) and Accommodation & Food Services (603,000). The primary reason for the large number of job openings is due to the lack of job skills.

Private Sector Businesses by Company Size. The following charts examine private sector businesses by size. As reported by the ADP National Employment Report (published monthly by the ADP Research Institute in close collaboration with Moody’s Analytics), data indicates that small business is the dominant economic force in terms of employment and job creation.

Today, small businesses (those companies with less than 500 employees as defined by the US Small Business Association) employ 77.4% of all private sector Americans with a total of 91,215,000 million employees—almost 5 times the amount of large corporations (1000+). Very small businesses with less than 19 employees employ 65% more than all large corporations combined (30.7M versus 18.6M).

Since the beginning of this decade, small business produced 73.6% of all new American jobs.

Last month’s small business jobs creation performance was with 79.8% of all new jobs. This are amazing statistics considering the adverse lending environment by financial institutions, mounting government regulation, and the pittance of federal government spending on small business creation.

Very small and startup businesses have traditionally been the primary source of employment for entry-level workers and the long-term unemployed. Had the US government paid more attention to this category of employers during its generous handouts of $17 trillion worth of federal government stimuli, bailouts and buyouts to financial institutions and large corporations since the Great Recession, as many as five to ten million more Americans would be employed today as estimated by Jobenomics.

According the US Small Business Association[4], startups, minus closures, create about 67% of American net new jobs. Also according the SBA, about half of all new small businesses survive five years or more, and about one-third of these start-ups survive 10 years or more.

It is a common misconception that small businesses, especially very small (1-19 employees), are the most fragile. The chart (above) indicates that very small businesses have been the most resilient of the five business categories following the Great Recession of 2008. This fact cannot be understated in an environment where small businesses have been starved for investment capital.

It is also a common misconception that small businesses are only involved service-providing industries whereas large major corporations dominate goods-producing industries. The above chart indicates that small businesses play a major role in both goods-producing (manufacturing, construction, and mining) as well as the service-providing industries.

Thomson Reuters/PayNet Indices provide valuable insight into the health of small business. The Thomson Reuters/PayNet Small Business Lending Index (SBLI)[5] measures the volume of new commercial loans and leases to small businesses. To create the SBLI, PayNet tracks new borrowing activity by millions of US businesses as reported by the largest lenders. The Thomson Reuters/PayNet Small Business Delinquency Index (SBDI)[6] measures small business financial stress and provides early warning of future insolvency. The most recent SBLI and SBDI are shown.

The SBLI (lending) indicates that new loan originations to small businesses have increased slowly since the end of the recession and may now be at the point of significant small business expansion. The SBDI (delinquencies) shows that loan delinquencies (31 to 90 days past due) are close to their lowest points since 2005. This is very good news for future economic growth. Small business creditworthiness is critical to business expansion and jobs creation.

Jobenomics asserts that the solution to growing America’s economy involves putting our small business economic engine into over-drive. Energizing existing small businesses and creating new small and self-employed businesses could create millions of new jobs within a decade. To prove the validity of this assertion, Jobenomics is working with a number of US cities to implement Jobenomics Community-Based Business Generators to create thousands of new-start businesses. The objective of a Jobenomics Business Generator is to increase “birth rates” of start-up businesses, extend the “life span” of small businesses, and increase the number of employees per business, which has decreased by approximately 30% since the Great Recession. Jobenomics is focused on four demographics with high growth potential: Generation Y-, Women-, Minority-, and Veteran-Owned Businesses.

If Jobenomics can help create thousands of highly-scalable small businesses, America writ-large can facilitate creation of millions of small businesses that would transform our economy. 2014 could be a break-out year for small businesses that traditionally have been the primary source of employment for entry-level workers and the long-term unemployed.

Service-Providing Sector. The US service-providing sector has grown 76% over the last three decades.

Today, the US service-providing sector employs a total of 98,860,000 people across seven industries. Since year 2010, the US service-providing sector created 9,449,000 new jobs, which equates to 83.7% of all new jobs created by the private sector.

Employment statistics for industries in the service-providing sector are ranked by the number of new jobs created between 1 January 2010 and 1 December 2014 (59 months):

Professional and Business Services: 3,047,000 new jobs
Trade, Transportation, Utilities: 2,160,000 new jobs
Education and Health Services: 1,954,000 new jobs
Leisure and Hospitality: 1,850,000 new jobs
Financial Activities: 270,000 new jobs
Other Services: 221,000 new jobs
Information (non-internet, like publishing): -53,000 jobs lost

Of the seven service-providing industries, only the Information (non-internet companies like broadcasting and publishing, such as newspapers) industry lost jobs (-1.9%) during the post-Great Recession recovery period starting in January 2010. The top three industries are Professional and Business Services (18.5%), Leisure and Hospitality (14.3%) and Education and Health Services (9.9%).

Goods-Producing Sector. The US goods-producing sector includes Manufacturing, Construction and Mining/Logging industries and has declined 22% since its peak in March 2000.

Today, the goods-producing sector employs a total of 19,252,000 people across the three industries: manufacturing, construction and mining/logging. Since year 2010, the US goods-producing sector created 1,458,000 new jobs, which equates to 13.1% of all new jobs created by the private sector.

Employment statistics for industries in this sector are ranked by the number of jobs created between 1 January 2010 and 1 December 2014 (59 months):

Manufacturing: 740,000 new jobs
Construction: 435,000 new jobs
Mining and Logging: 263,000 new jobs

The fastest growing industry in the goods-producing sector is Mining/Logging (39.7%), followed by Construction (7.7%) and Manufacturing (6.4%). The explosive growth in the Mining/Logging industry is largely due to oil and natural gas extraction, and related exploration and support activities.

US Manufacturing Assessment. While manufacturing has added 740,000 new jobs since the beginning of this decade, it has a long way to go to achieve peak its peak level of 19.6 million in June 1979 after sustaining a consistent growth rate from its post-World War II low of 12.5 million in September 1945. Since its peak in 1979, the US manufacturing industry has declined by 38%.

Manufacturing currently employs 12,217,000 people, which is not statistically significant from manufacturing’s all time low of 11,462,000 in January 2010. The manufacturing sector is still in the doldrums from a historical perspective.

Over the last 12 months, manufacturing has had 11 up-months and 1 down-month in terms of employment with a net increase of 142,000 jobs in the last year out of a total of approximately 2.6 million new jobs across all private sector industries.

Notwithstanding the political rhetoric about increasing US exports, re-shoring of US manufacturing jobs and increased US productivity, Jobenomics forecasts limited upside jobs potential in manufacturing due to excessive government regulation, improved automation, competitive foreign labor rates, and a lack of high-tech manufacturing skills in our civilian labor force (see Jobenomics’ Manufacturing Industry Forecast posting). The advent of new technologies (like 3D printing of manufactured parts and advanced robotics) reduce the need for non-skilled labor as well as automating many higher level positions in marketing, accounting, machinists and administration. As of the most recent BLS Job Openings and Labor Survey, US manufacturers have 285,000 open high-tech jobs that currently are unfilled out of a total of 4.8 million unfilled jobs across all industries. Jobenomics is also concerned by the amount political and public emphasis on the manufacturing growth as the primary engine for jobs creation. While manufacturing is vitally important to our nation, political emphasis needs to be on the high growth industries in the service sector. Manufacturing emphasis should be on protecting our gains and focusing on next-generation manufacturing technology, processes and recapitalization.

US Construction Industry Assessment. Even though the construction industry is showing signs of growth, the construction sector continues to struggle after a rapid rise (69%) during the go-go years in the 1990s and the housing bubble in the early 2000s.

In the 2006-07 time period, peak construction employment was 7.73 million. Today, it is 6.10 million, a loss of -21%. The good news is that construction employment stopped its decline and has increased from its post-recession low of 5.44 million in January 2011.

Over the last 12 months, construction has had 11 up-months and only one down-month in terms of employment with a net increase of 231,000 jobs in the last year out of a total of approximately 2.6 million new jobs across all private sector industries.

Residential construction employment has been the hardest hit segment with a 43% decrease from its pre-recession peak (3.45 million) to its post-recession low (1.98 million). Today, residential construction employment is still down from its peak by 32% with a total employment of 2.33 million. Nonresidential construction fared slightly better with losses of -24% from peak and -17% today with 2.85 million employed. The heavy and civil engineering sector fared the best (largely due to federal stimulus programs) loosing -19% from peak and now down only -9% with a total of 923,000 employed.

As of the most recent BLS Job Openings and Labor Survey, US construction companies have 90,000 open jobs (mainly higher skilled jobs) that currently are unfilled out of a total of 4.8 million unfilled US jobs. While these number are positive overall, the bulk of job hires occurred last year or early in 2013. The construction industry had a downturn occurred during peak summer construction months. In addition, increasing mortgage rates coupled with an eroding middle-class will hamper new home construction starts for the future.

Robust residential construction usually leads economic recoveries. However, this recovery is different. As shown above, according to US Census Bureau Data, new residential starts dropped from a peak 2,273,000 in 2006 to a low 478,000 in April 2009. As of the latest US Census Bureau data available[7], new residential construction starts was 1,009,000 in October 2014, which represents an improvement from a 80% decrease in April 2009 to a 56% decrease today from the January 2006 peak.

The Census Bureau also reports[8] that US home ownership has dropped to its lowest level since 1977 and down -6.7% from its high in 2004. This drop is due to less affordable housing, more restrictive lending, fewer first-time buyers who are renting rather than buying, and people who have dropped out of the housing market.

Jobenomics forecasts that the residential construction industry will not produce a significant number of jobs for the remainder of this decade due to foreclosures, underwater mortgages, unemployment as well as changing attitudes to the value of homeownership. Due to the stagnant economy and government deficits, commercial and heavy construction is also unlikely to produce a significant number of new domestic jobs. Jobenomics does see potential in major foreign construction projects, green construction and renovation of older homes, and reconstruction of disaster areas.

US Mining/Logging Industry Assessment. Mining (oil & gas extraction, coal and minerals) and logging goods-producing sector continues to be a bright area for employment growth. From the beginning of this decade, mining increased employment by 263,000 jobs, with an impressive growth rate of 39.7%. With proper private and public sector support, this industry has significant upside potential.

Mining exploration and support employment has more than doubled in the last decade and likely to double again with exploration for domestic energy sources. Oil and gas extraction is also likely to double with new natural gas, oil shale, oil sands and offshore oil resources are exploited via new technology, like horizontal drilling and hydraulic fracturing (fracking). Minerals mining employment has been stagnant over the decade, but this may change as commodity prices (gold, silver, copper) increase as well as worldwide demand for these commodities increase. Coal mining and logging are not likely to increase anytime soon mainly due to environmental pressure and the emphasis on clean renewable technology.

The Government Employment Sector. Total government sector employment currently is 21,933,000. Since 1 January 2010, government has lost 549,000 jobs, a negative 2.4% growth rate. Employment statistics in this sector is shown in the following chart.

The government sector continued to lose jobs with 66.8% of all job losses occurring with local government (mainly teachers, police and firefighters), 12.8% at the state level, and 20.4% in the federal government (not including military, which is also downsizing). Jobenomics predicts that government job losses will continue to decline due the effects of sequestration as well as debt and deficit spending. In addition, if the US economy suffers an economic disruption due to either domestic or foreign events, government spending will likely decrease further.

In conclusion, business and jobs creation is the number one issue facing US economic recovery. While some would argue that debt/deficits or entitlement/welfare are the biggest issues, it takes businesses to create lasting jobs that generate tax revenue to run government as well as supporting the less fortunate. The following chart is about as simple as Jobenomics can make it.

Today, out of a total population of 319 million Americans, the US has 110 million taxpayers (34%) working in the private sector who support: 32 million government workers (including 10 million government contractors), 18 million unemployed or underemployed (BLS U6 rate) workers who are looking for work, 92 million able-bodied people (Not-in-Labor-Force category) who can work but are not looking, and 69 million (mainly children, retired and disabled) who cannot work. The US economy cannot be sustained by 34% supporting an overhead of 66% via a combination of welfare, entitlement, familial and charitable programs. More people must be productively engaged in the private sector labor force for the US economy to flourish.

The solution to growing America’s economic base involves engaging our small business economic engine. Even though severely constrained by limited financing and restrictive government policies, small businesses created 73.6% of all new jobs in the US since the end of Great Recession. Jobenomics believes that new small, emerging and self-employed businesses could create 20 million new jobs within a decade, if properly incentivized and supported. Consequently, Jobenomics is focused on four demographics with high growth potential that include Generation Y (via monetizing social networks), Women-Owned Businesses (via direct care business creation), Minority-Owned and Veteran-Owned Businesses. Jobenomics is also working on urban mining of high-value electronic waste and tires to fund Jobenomics Community-Based Business Generators that are designed to mass produce small and self-employed businesses as well as accelerating extant small and medium-sized businesses. If Jobenomics can help create thousands of highly-scalable small businesses, America writ-large can facilitate the creation of millions of small businesses that would transform our economy.

[1] US Bureau of Labor Statistics, Employment Situation Summary, http://www.bls.gov/news.release/empsit.nr0.htm

[2] BLS, Table B-1, Total Nonfarm, Seasonally Adjusted, http://data.bls.gov/timeseries/LNS12300000

[3] BLS, Job Openings and Labor Survey, http://www.bls.gov/news.release/jolts.htm

[4] US Small Business Association, Office of Advocacy, Which businesses create more jobs—startups or existing businesses?, http://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf

[5] Thomson Reuters/PayNet Small Business Lending Index, http://paynetonline.com/SmallBusinessInsights/ThomsonReutersPayNetSmallBusinessLendingInde.aspx

[6] Thomson Reuters/PayNet Small Business Delinquency Index, http://paynetonline.com/SmallBusinessInsights/ThomsonReutersPayNetSmallBusinessDelinquency.aspx

[7] US Census Bureau, Business and Industry, Time Series/Trend Charts, New Residential Construction, Annual Rate for Housing Units Started, http://www.census.gov/construction/nrc/historical_data/

[8] US Census Bureau, Table 14. Homeownership Rates for the US and Regions: 1965 to Present, http://www.census.gov/housing/hvs/data/histtabs.html

Jobenomics Unemployment Report: December 2014

Jobenomics Unemployment Report: December 2014

http://Jobenomics.com

By: Chuck Vollmer

7 December 2014

Jobenomics tracks both employment (see: Jobenomics Employment Scoreboard: December 2014) and unemployment (this posting). Download PDF version: Jobenomics Unemployment Report - December 2014 and Jobenomics Employment Report - December 2014

Executive Summary. According to the December 2014 Bureau of Labor Statistics (BLS) Employment Situation Summary[1], the unemployment rate dropped to 5.8%, total nonfarm payroll employment rose by 321,000, and the “Not-in-Labor-Force” category increased by 69,000 citizens who quit looking for work, for a net gain of 252,000 people in the US labor force.

Jobenomics rates the December BLS Employment Situation Summary as a strong report due to two factors. First, 321,000 people entered the US labor force which is well over the threshold number of 250,000 needed for economic growth. Secondly, as shown below, small businesses created 80% of all new jobs last month. Small business is America’s economic engine and employs the vast majority of all Americans. While the number of people voluntarily departing the labor force was a negative 69,000 it was not as large as normal.

The solution to growing the US economy involves business creation with emphasis on small business that has created 73.6% of all new jobs this decade. Small businesses employ 77.4% of all private sector Americans with a total of 91.2 million employees—almost 5 times the amount of large corporations (1000+). Very small businesses with less than 19 employees employ 65% more than all large corporations combined (30.67M versus 18.6M). Contrary to popular opinion, 50% of all small business startups last five years and 30% remain in business over ten years. In addition, small business growth has outperformed medium and large businesses during the recovery from the Great Recession.

While there is reason to celebrate the official unemployment rate dropping to 5.8%, one must understand that it is theoretically possible for the US to have a zero rate of unemployment while simultaneously having zero people employed in the labor force. To be counted in the “unemployed” category, people have to be looking for work. When a person stops looking, the BLS records them in the “not-in-labor-force” category that is reserved for those who can work but are no longer looking. If the total number of unemployed and Not-in-Labor-Force were tallied together as “functionally unemployed”, the US unemployment rate would be a staggering 35%.

Understanding Employment and Unemployment Statistics. According to US Department of Labor, the basic concepts involved in identifying the employed and unemployed are quite simple:

People with jobs are Employed.
People who are jobless, looking for jobs, and available for work are Unemployed. Those who are marginally employed, and looking for jobs, are deemed Underemployed.
People who are neither employed nor unemployed are not in the labor force. Those who have no job and are not looking for a job are counted in the BLS’ Not-in-Labor-Force (NiLF) category. When a discouraged worker stops looking for work, that person is no longer considered unemployed by the BLS, they are moved into the NiLF category.

Therefore, as shown:

Working Population = Employed + Underemployed + Unemployed = 157.8 million.
Non-Working Population = Not-in-Labor-Force + All Others = 161.6 million.

The Working Population includes 140.0 million employed in government and private sector, and 17.8 million people who have a marginal job, no job, and are looking for work (U6 category). The BLS calls this group, the “Civilian Labor Force”, which is defined as citizens, who have jobs or are seeking a job, are at least 16 years old, are not serving in the military and are not institutionalized.

The Non-Working Population includes 92.4 million in the BLS’ Not-in-Labor-Force category who can work but are not looking. Not-in-Labor-Force includes people (over 16 years old) such as discouraged workers, citizens who choose not to work, welfare recipients, students, retired, stay-at-home caregivers, etc. The remaining All Others category that include 69.2 million children, elderly, disabled, serving in the military, incarcerated, etc.

Unemployment Rate Categories. Every month, the BLS publishes unemployment and employment statistics for economic, policy and public decision-making. Unfortunately, few policy-makers, opinion-leaders, or American citizens truly understand these statistics. More importantly, Americans tend to focus on only one statistic—the U3 rate or “official” unemployment rate—which is deleterious to good decision making. The chart below highlights the U3 rate against a backdrop of other BLS unemployment (can work and are looking) and Not-in-Labor-Force (can work but are not looking) categories.

The BLS calculates six unemployment categories (U1 through U6[2]) every month for those that can work and are looking for work. The three most often reported categories are the so called Long-Term U1 Rate, the Official Unemployment U3 Rate, and the Total Unemployment U6 Rate. These rates and numbers are calculated as a percentage of the US Civilian Labor Force, which is less than half of the total US population of 319 million[3].

As of 1 December 2014, the U1 category is currently 2.7% with 4.2 million unemployed longer than 15 weeks. The U3 category is 5.8% with 9.1 million “officially” unemployed. The U6 category is 11.4% with 17.8 million under-employed or unemployed citizens.

The official unemployment rate (U3 Rate) is a relatively poor indicator of the overall employment situation in the United States. In comparison to those employed and those that can work but don’t (Not-in-Labor-Force), the official unemployment rate is a relatively small number, undeserving of the amount of attention it receives. As shown above, since the beginning of year 2000 to today, the U3 has increased by 3.3 million people compared to employment growth of 12.8 million and Not-in-Labor-Force growth of 23.8 million.

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 Not-in-Labor-Force 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 Not-in-Labor-Force. Americans need to focus on increasing employment and reducing the vast exodus of people leaving our labor force. By shifting focus to business creation, especially small businesses the mainstay of the US economy, the number of the unemployed would decrease correspondingly.

Since the peak of the Great Recession, the official unemployment rate dropped from 10.0% in October 2009 to 5.8% today. Correspondingly, the number of officially unemployed dropped from 15.4 million to 9.1 million, a decrease of 6.3 million people. During the same time period, the number of people who voluntarily dropped out of the work force—many to the netherworld of perpetual unemployment and welfare—increased from 82.8 million to 92.4 million, an increase of 9.6 million. While America reduced its number of it “officially” unemployed, it increased the number of its able-bodied adults without a job by 3.3 million citizens. This demonstrates how, 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.

The “Functionally Unemployed”. Jobenomics defines “functionally unemployed” as the total number of people that have no job and are capable of working—110.3 million Americans. From a Jobenomics perspective, Not-in-Labor-Force citizens should be classified as long-term unemployed. If all underemployed, unemployed and Not-in-Labor-Force people were “functionally unemployed”; the unemployment rate would be an astounding 35%.

The Jobenomics “functionally unemployed rate” is 35% or 110.3 million people. 110.3 million is calculated by adding the BLS U6 number (17.8 million) and the BLS Not-in-Labor-Force number (92.4 million). Dividing 110.3 million by the total US population of 319.4 million yields a functionally unemployed rate of 35%. Understanding the functionally unemployed rate of 35% is a much better indicator of economic distress, than the much lower 5.8% “official” U3 unemployment rate that is most often watched and reported.

Labor Force Participation. Another way to look at our employment/economic situation is via the Labor Force Participation Rate[4].

The labor force participation rate is the percentage of working-age persons who are employed or unemployed but looking for a job. Since year 2000, the US working population suffered a serious decline from a high of 67.3% to 62.8% today—a net 6.7% decline from peak and rate that was last seen in January 1978—36 years ago. Today’s labor force participation rate would be much lower if not for working women who did not participate in the US labor force in 1978 as they do today.

The primary reason for the dramatic drop in the labor force participation rate is largely due to those that simply have quit looking for work and are now categorized as Not-in-Labor-Force. Alarmingly, the BLS reports that 94% of the people in the Not-in-Labor-Force category currently do not want a job now.

The American workforce is getting grayer. Economic uncertainty is keeping older Americans on the job and delaying retirement. As shown above, the BLS projects that the percentage of older Americans in the US civilian labor force will increase 40% from 1990 to 2020 while the percentage of younger Americans, aged 16 to 24, will shrink by 25%. BLS data also shows that once older workers are out of work, they have a much harder time finding employment than a younger worker.

The BLS’s Employment-Population Ratio[5] is another statistic that is not widely used, but is very useful in a strategic context. This ratio answers the question, “what portion of the working-age population is employed?” and is useful in understanding how our economy is performing. The BLS defines this ratio as the proportion of the civilian noninstitutional population aged 16 years and over that is employed. The civilian noninstitutional population includes all adult workers not in institutions like hospitals, prisons, and military. Today, the total US population is 319 million with a civilian noninstitutional population of 249 million[6] of which 59.2%, or 147 million, are employed. Since the peak on 1 April 2000, 8.5% fewer Americans are engaged in the US work force as a percentage of the total working age population. Unless this trend is reversed, America will increasingly be a nation of haves and have-nots due to an eroding middle-class and a growing welfare population.

The “Not-in-Labor-Force” Category. The downward trends in the US working population and the upward trend in the US non-working population pose serious challenges to America’s economy and way-of-life. These trends are shown in the following charts.

According to BLS data[7], those in the Not-in-Labor-Force category (those that can work but don’t) has surged consistently since year 2000 by 23.8 million people. Since 2009, the start of the Obama Administration, it grew by 12.1 million. Since 2010, the beginning of the decade, it grew by 8.6 million people. In the last 12 months, it grew by 1.2 million. Last month 69 thousand people departed the US labor force and joined the Not-in-Labor-Force category.

In terms of demographics, the Not-in-Labor-Force includes 51 million people 55 years or older (55.3%), 24 million 25-to-54 year olds (25.6%), and 18 million 16-to-24 year olds (19.0%). In terms of gender, Not-in-Labor-Force includes 55 million women (59.6%) and 37 million men (40.4%). Recent trends have been most unfavorable to those over 55 years old, who once out of work tend to stay permanently out of work.

From January 2000 until today, the Not-in-Labor-Force has grown 35% compared to 7% growth in the private sector work force. At the current rate of Not-in-Labor-Force growth, those than can work but choose not to work will outnumber those working sometime in 2022.

Contingency Workers. The US economy is turning to nonstandard workers called contingency workers. Contingency workers (consultants, independent contractors, independent professionals, temporary contract workers, part-time workers, seasonal workers, freelancers, etc.) are replacing full-time employees at an increasing rate. Contingency workers currently represent approximately 31% of the US labor force. According to Bloomberg Businessweek[8], contingency workers could represent 40% of the US labor force by 2020.

In the President’s 2012 budget for the Bureau of Labor Statistics, the Obama Administration proposed collecting data about the contingent work force. Unfortunately, this has not transpired so an accurate accounting is not available. Best estimates put the contingent workforce at 45 million people of which 27 million are part-time works. 7 million part-time workers for economic reasons (involuntary part-time workers who work part-time due to slack work or unfavorable business conditions, inability to find full-time work, or seasonal declines in demand) have increased 114% since year 2000. 20 million part-time workers for noneconomic reasons (voluntary part-time workers who work part-time due to childcare problems, family or personal obligations, school or training, retirement or Social Security limits on earnings, and other reasons) have grown only 4% since year 2000, but is anticipated to increase significantly as more baby boomers deplete their retirement savings. 76 million baby boomers began retiring in 2011. 1/3 of these retirees have no savings and 2/3 will exhaust savings within five years.

The Network Technology Revolution (see http://jobenomicsblog.com/network-technology-revolution/) will enable the information age to upend the industrial age and transform the American labor force as well as the very nature of work. Jobs will increasingly be dissected into discrete tasks, which, in turn, will be addressed by temporary collectives and virtual organizations. Team collaborative and management tools will further create “contextual” work environments that rapidly form, perform, and then reform to address subsequent tasks. More and more brick and mortar edifices will give way to hoteling, mobile computing and significant increases of contingency workers.

Given current trends in productivity, technology and necessity, contingent work could quickly become the dominant form of American labor. Government will try to keep this from happening to keep the onus on big business to produce payroll taxes and provide social benefits. In the end, government will fail to keep the US labor force from rationalizing. During the rationalization process, contingency workers will organize in ways that maximizes earnings and benefits. Jobenomics predicts that small and self-employed businesses will be created to service this need.

34% of all Americans are financially supporting the rest of the country. 110 million workers in the private sector are supporting 32M that work for government (including contractors), 92M that can work but choose not to work, 69M that cannot work (children, retired, disabled, etc.) and 18M that are looking for work (officially unemployed and unemployed). For the American economy to prosper in the 21^st Century, we must place more emphasis in growing the private sector labor force and reducing the overhead with emphasis on stemming the exodus of people looking for work to not looking for work.

The solution to growing America’s economic base involves engaging our small business economic engine, which is discussed in detail in the Jobenomics Employment Report: December 2014. Even though severely constrained by limited financing and restrictive government policies, small businesses created 73.6% of all new US jobs since the beginning of this decade.

Jobenomics believes that new small, emerging and self-employed businesses could create 20 million new jobs within a decade, if properly incentivized and supported. Today, Jobenomics has a following of several million people. Jobenomics programs involve highly scalable business creation efforts that can mass produce new small US businesses with emphasis on Generation Y-, Women-, Veteran-, and Minority-owned businesses.

[1] US Bureau of Labor Statistics, Employment Situation Summary, http://www.bls.gov/news.release/empsit.nr0.htm

[2] BLS, Table A-15, Alternative measures of labor utilization, http://www.bls.gov/news.release/empsit.t15.htm

[3] US Census Bureau, US & World Population Clocks, http://www.census.gov/main/www/popclock.html

[4] BLS, Labor Force Participation Rate, http://data.bls.gov/timeseries/LNS11300000

[5] BLS, http://data.bls.gov/timeseries/LNS12300000

[6] BLS, Table A-1, Employment Status, http://www.bls.gov/news.release/empsit.t01.htm

[7] BLS, Table A-16, Persons not in the labor force and multiple jobholders by sex, not seasonally adjusted, http://www.bls.gov/webapps/legacy/cpsatab16.htm

[8] Bloomberg Businessweek, 20-25 October 2014 Edition, Companies/Industries, Page20

Jobenomics

Goal: Creating 20 Million Jobs By 2020

Monthly Archives: December 2014

Jobenomics Employment Report: December 2014

Jobenomics Unemployment Report: December 2014