Jobenomics tracks both employment (see: Employment Scoreboard: June 2012) and unemployment (this posting).  Highlights of this posting:

• 155.0 million American are in the Working Population, which includes 132.1 million employed and 22.9 million people who are unemployment and looking for work.  There are 158.7 million in the Non-Working Population, which includes 88.0 million that can work but are not looking and 70.7 million that cannot work (mainly children, retired and the disabled).
• Since 2000, 19 million Americans quit looking for a job and joined the ranks of “Not-in-Labor-Force” (NiLF) according to the Bureau of Labor Statistics.    Since 2010, 3.7 million Americans quit looking and joined NiLF.  These Americans are not included in the official unemployment figures.  At the current rate of growth those than can work but choose not to work will outnumber private sector workers sometime in year 2021.
• If all the underemployed, unemployed and NiLF people (i.e., all able-bodied people looking for work and not looking for work) were calculated as “functionally unemployed”, the US unemployment rate would be 35%.
• The downward trend in the US working population and the upward trend in the US non-working population pose a serious threat to America’s economy and way-of-life.  Unfortunately, the vast majority of Americans are not aware of these trends.
• 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 not in the labor force.

Every month, the Bureau of Labor Statistics (BLS) publishes unemployment and employment statistics for economic, policy and public decision-making. Unfortunately, few policy-makers, opinion-leaders, media-pundits and citizens understand these statistics.  More importantly, Americans tend to “dumb down” the numbers to one statistic—the U3 rate or “official unemployment rate”.  Jobenomics believes that a basic understanding of unemployment and employment statistics, rates and numbers is essential to good governance, which is the reason that these scoreboards are updated and posted monthly.

A solid understanding of both unemployment and employment is paramount to good decision-making.   The following chart is about as simple as Jobenomics can make it.

32% of all Americans are financially supporting the rest of the country.  101 million workers in the private sector are supporting 32M that work for government (including contractors), 88M that can work but choose not to work, 71M that cannot work (children, retired, disabled, etc.) and 23M that are looking for work (officially unemployed and unemployed).

America’s number one priority is to grow the base with emphasis on small business creation, which produced 95% of all net new jobs this decade.  It is also important to reduce overhead expenses.  As reported in this posting, government is already downsizing.  Reducing entitlement and welfare is proving to be very difficult given the great need as well as political positioning. It takes businesses to create lasting jobs that generate tax revenue to run government and support the less fortunate.

The Bureau of Labor Statistics uses the terms “unemployed” and “employed” to describe what Jobenomics calls the Working Population, which represents less than a half of the US population.   The majority of Americans who cannot or will not work are in a group that Jobenomics calls the Non-Working Population.   A glass half-full analogy may provide a useful framework to describe the Working Population as contrasted to the Non-Working Population.

According to the Bureau of Labor Statistics (BLS) 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 and those who are marginally employed 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 one—are counted in the Not-in-Labor-Force (NiLF).

These three categories comprise the BLS’ “civilian noninstitutional population”[1], which equates to 242.9 million people as of 1 June 2012.  Since the total US population is 313.7 million (US Census Bureau data[2]), there are 70.7 million children, elderly, disabled, serving in the military, incarcerated, etc. who are not counted in the BLS’ civilian noninstitutional population.  These uncounted 70.7 million who cannot work are in a category named All Others by Jobenomics.

Therefore, from a Jobenomics perspective:

• Working Population = Employed + Underemployed + Unemployed = 155.0 million.
• Non-Working Population = Not-in-Labor-Force + All Others = 158.7 million.

As shown on the graphic above, 155.0 million are in the Working Population, which includes 132.1 million employed and 22.9 million people who have a marginal job, no job, or are looking for work.  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 158.7 million in the Non-Working Population include 88.0 million that can work and 70.7 million others that cannot work.  Those who have no job and are not looking for one are counted by the BLS as Not-in-Labor-Force.  Many who are in the NiLF are going to school or are retired.  However, many more have simply quit looking and are living at home, part of the underground (illegal) economy, or on welfare.  To truly understand the magnitude of the unemployment problem, America needs deeper insight into the vagaries of its non-working population that now represents more than half of all Americans.

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

This chart compares the growth of those in the NiLF category versus those working in the private sector.  From 1 January 2000 until today, the NiLF has grown 28% versus 1% in the private sector.  At the current rate of growth those than can work but choose not to work will outnumber those working sometime in year 2021.

Over the last three decades the number of people working as a percentage of the working population (civilian noninstitutional population) increased steadily to a peak in year 2000.  After year 2000, the US working population suffered a serious decline.   While the Great Recession in 2008/09 exacerbated the situation, the decline started in the new millennium’s boom years.  Today, only 63.6% of our citizens are in the labor force, which is the lowest it has been since the early 1980s.   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.  Alarmingly, the BLS reports that 93% of the people in the NiLF currently do not want and are not looking for a job.

 Those in the Not-in-Labor-Force category have grown consistently since year 2000.  Since 2000, this category grew by 19.1 million people.  Since 2010, it grew by 3.7 million people—a rate 30% higher from the decade of the ‘00s.

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%).

The “Functionally Unemployed”.   When a discouraged worker quits looking for work, he/she is eventually moved into the Not-in-Labor-Force category—which essentially means that this former worker is in an unemployment limbo and off-the-grid from a working population perspective.

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 calculated as “functionally unemployed”, the US unemployment rate would be a whopping 35%.

The Bureau of Labor Statistics (BLS) calculates six unemployment categories (U1 through U6) every month.  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.   As of 1 June 2012, the U1/U3/U6 rates equated to 4.6%/8.2%/14.8% or 7.1/12.7/22.9 million people respectively.   These rates and numbers are calculated as a percentage of the US Civilian Labor Force, which currently stands at 155.0 million Americans-less than half of the US population.  The Jobenomics “functionally unemployed rate” equates to 35% of the US population or 110.9 million people.   110.9 million is calculated by adding the BLS’ U6 number (22.9 million) and the BLS’ NiLF number (88.0 million).   Dividing 110.9 million by the total US population of 313.7 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 numbers indicated by the U3 “official” unemployment rate that is most often watched and reported.

As of 1 June 2012 the U3 Rate was 8.2% — 0.8% lower than the September 2011 rate of 9.0%.  Each consecutive month, these incremental drops made headlines around the world as signs of US economic recovery.  However, buried in the newsprint, millions of Americans were reported to have “simply quit looking for work”.  Where did these people go? As discussed earlier, they went to NiLF limbo.

The table above is derived from the US Bureau of Labor Statistics, Table A-1, Employment Status of the Civilian Population.  It shows from September 2011 through May 2012 the official unemployment rate (U3) dropped from 9.0% to 8.2%, which equates to a decline of 1,177,000 people.  However, the table also shows that 1,891,000 people joined the NiLF category over the same period of time—an increase of 714,000.

If the “official unemployment rate” was adjusted for these 714,000 workers joining the NiLF, the official unemployment rate would be 8.7% as opposed to 8.1%, which is currently being heralded as a “significant sign” of economy recovery.  In other words, the unemployment rate has not dropped over the last year(s) since those who quit looking are no longer counted as unemployed.

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.

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