Saturday, December 3, 2016

Not in Labor Force NILF -- November 2016

Not in Labor Force (NILF) -- November 2016

Finding the hidden unemployment rate?

Subjects: Unemployment, Not in Labor Force, Working Age, Recession

Armed with the knowledge that the U-3 Unemployment Rate is subjective rather than objective, the nagging question is, "How do we compare current unemployment rates with historical unemployment rates?"

Not in Labor Force (NILF) is a top level catch-all category for those who are neither employed, nor unemployed (not actively seeking employment). The Civilian noninstitutional population includes the Labor Force, which is composed of the Employed, plus the Unemployed, everyone else considered Not In Labor Force. There will always be a certain amount of the NILF for various reasons, education, child rearing, disability. These are persons who did not work during the survey period and did not actively seek employment.

One way to model the effect of variance in the NILF would be to establish a bench-mark and distribute that percentage of NILF in all of the years going forward. With this model we effectively, establish what portion of the NILF would be considered unemployed and available for employment. In the chart below, I chose the average NILF (15.87%) for 1999, the last year we had full employment.

The chart uses the working-age population (25 through 54), to eliminate most students and baby-boomer retirements. This data is only available in the unadjusted series.

The (blue) chart data is the remainder of the NILF above 15.87%, which are then combined with the average number of unemployed for the year and then divided by the average employment level.

As expected, there is no deviation between the unemployment rate (red) and the unemployment rate plus the remainder of the NILF (blue) in 1999.

For the Bush 43 administration years, 2000-2008, we see that the headline unemployment rate would have been about 1.5% higher had these persons not been classified NILF.

For the Obama administration years, we see NILF obscure 3% of the unemployed in 2009 and over 4% in 2013, 2014 and 2015.

The St. Louis FRED is reporting a 3.8% unemployment rate in this age-group for November, 2016 (avg. 4.2% for the year), quite a departure from the 8.0% (1999 equivalent) in the chart.

See also: The plight of working age employment in the 21st century.

BLS Household Survey:
Series Id: LNU00000060
Series Id: LNU02000060
Series Id: LNU05000060

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