Submitted by Lance Roberts of Streettalklive.com
Bringing The "Not In The Labor Force" Mystery To Light
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There has been much debate over the weekend regarding the 1.2 million individuals who moved into the "Not In Labor Force" category in Friday's Bureau of Labor Statistics report, which included an increase to the total population of 1.5 million. From the Wall Street Journal [15]:
"Here's what happened: According to the Census Bureau, the civilian population [age 16 and over] grew by 1.5 million people in 2011. But the growth wasn't distributed evenly. Most of the growth came among people 55 and older and, to a lesser degree, by people 16-24 years old. Both groups are less likely to work than people in their mid-20s to early 50s. So the share of the population that's working is actually lower than previously believed. Taking that into account, the employment-population ratio went up. The unemployment rate wasn't affected.
'There was not a big increase in discouraged workers,' economist Betsey Stevenson commented on Twitter [16]. 'What happened was Census found a bunch of old people we had assumed died.'
The adjustments had other effects, as well. They made the drop in the number of unemployed look smaller than it really was, and the rise in the number of employed look bigger. And because the Labor Department doesn't readjust its historical data to account for the new calculations, it isn't possible to compare January's figures on employment, unemployment and similar measures to those from earlier months."
So, fortunately, we have a lot more people alive than previously estimated. (Note to self: the TWO best jobs in the world are Mortician and Labor Analyst - when everything goes wrong people come back to life). However, I want to dig a little deeper into the Not In Labor Force (NILF) category to see what is really going on.
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From the BLS Report [18] (emphasis added): "The adjustment increased the estimated size of the civilian noninstitutional population in December by 1,510,000, the civilian labor force by 258,000, employment by 216,000, unemployment by 42,000, and persons not in the labor force by 1,252,000. Although the total unemployment rate was unaffected, the labor force participation rate and the employment-population ratio were each reduced by 0.3 percentage point. This was because the population increase was primarily among persons 55 and older and, to a lesser degree, persons 16 to 24 years of age. Both these age groups have lower levels of labor force participation than the general population."
So, as you can see in the first chart above, the adjustment to the population over the last decade was the second largest on record. However, the devil is in the details, as the population of 55 and older didn't really increase — they were always there but just not counted. The real concern is with the 16-24 age group. The longer that age group remains unemployed, the higher the probability that they will become long-term unemployable due to degradation of job skills. As we have seen in the recent reports, this age group has a much higher unemployment rate than any other category, and that doesn't bode well for economic strength in future as this group moves into lower wage-paying positions. Recent manufacturing reports show that one of the problems they face is finding "skilled" labor to fill available positions. The shift away from a production and manufacturing base over the last 30 years in the U.S. is now starting to take its toll. The problem, in trying to bring manufacturing back to the U.S., is not just education and skill training but also competitive advantages that the U.S. will have a difficult time overcoming in terms of underlying production and labor costs. Countries like China and Korea have no regulatory, environmental and minimum wage requirements to meet. Those are all additional costs that the U.S. must build into production costs, which limits our competitive potential. Outsourcing is going to be a long-term problem that will be very difficult to reverse.
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But that is only one part of the issue. Another reality that impacts long term employment issues is our ongoing decline in economic prosperity. The number of individuals falling into the NILF category has been on the rise over the last decade, and the slope of that rate of increase is rising sharply. Of course, the knee-jerk answer response is that it is due to the rash of "baby boomers" moving into retirement. There is no arguing that a large number individuals are moving toward what would normally be retirement years. However, given the fact that the majority of average Americans, including the aging demographic, are woefully underprepared for retirement, they are being forced to work longer into their retirement years. Therefore, demographic trends alone do not adequately answer this issue. The reality is that the economic growth rate of the country over the past three decades has not been sufficient to support the growth in population. This is the same problem that exists in many other countries as well, countries where population growth has been faster than economic capacity. The decline in prosperity, which can be directly linked to increasing debt per household and lower savings rates, has led to higher levels of long-term unemployment and ultimately increases in the NILF category as shown in the chart above.
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The chart above shows the actual revised NILF numbers from January 1990 to Present with an estimated increase of 350,000 per month going forward to account for the retiring "baby boomer" generation. The issue is that the January increase to the NILF category was 4X the estimated rate of increase. While there will be revisions in the coming months, what is important to note here is that, as usual, analysts and the media got lost in "the number" rather than understanding the relevance of the number in relation to the overall trend.
With the long-term trends of economic growth and employment on the decline, the issue for the U.S. going forward is how to correct these problems and return the country to a path of prosperity. With debt ratios in excess of GDP and deficits running into the foreseeable future, the negative ramifications for economic prosperity remain headwinds. The debt deleveraging cycle for households will take much longer than most think, and the impact of the deflationary cycle will continue to takes its toll on wages and employment going forward.
The good news, however, is this. Just as it happened post "The Great Depression", the country will rid itself of its excesses and return to its root values that have been lost to greed and excess over the past thirty years. Individuals will once again return to saving more, which will in turn lead to productive investment. The "innovation" cycle that the U.S. holds will continue and, as debt levels are reduced, the growth rate of the economy will begin to accelerate.
America is not doomed to "Third World" status if the leaders of this country will begin to do what is fiscally and politically in our collective best interest. The idea of the "American Dream" is still alive. However, that dream was gradually perverted by the shift from generations of hard working individuals who strived to "build stuff" to an "entitlement generation" of "give me stuff". The country cannot prosper with 1 out of 2 Americans on some sort of government assistance program, 87 million not in the labor force and over 46 million Americans on food stamps. This will change as necessity will ultimately dictate.
The best for us lies ahead. It will just take the realization that "hard work" and "sacrifice" are ideals that will once again have to be adopted not only by the "Average American" but by our government as well.