The Right Coast

April 29, 2004
Measuring Job Growth
By Mike Rappaport

I just discovered a short op ed in the New York Times arguing that the "job loss" over the past three years is not real and is largely the result of statistical problems. Since the piece is no longer available on line, I will excerpt a longer than usual portion. It is written by Tim Kane of the Heritage Foundation:
    There have been two million jobs lost since March 2001. Or have there? It depends, as usual, on which statistics you use. And there is reason to doubt the numbers from the payroll survey, which the Labor Department has used since 1939, because they give a misleading picture of the 2004 economy.

    The payroll survey counts jobs, not workers. But counting payroll jobs is a questionable way of measuring America's evolving work force, especially in light of declining job turnover. The payroll survey's biggest problem is that it systematically double counts workers when they change jobs. Since somewhere between 2 percent and 3 percent of the work force changes employers every month, payrolls tend to be noisy. The illusion of lost jobs in recent years occurred because job turnover declined after 2000, first with the recession, then even more sharply after 9/11. As a result, 1 million jobs have been artificially "lost" in the payroll survey since 2001.

    Despite last month's jobs surge, the payroll survey remains stubbornly out of whack with other economic indicators, even other labor indicators. Unemployment has been very low and is now near what economists call a "natural" rate. Real earnings rose by 3 percent over the last three years. Jobless claims are 10 percent below their historical average, and that's without adjusting for population.

    The sharpest contrast can be seen by looking at the Labor Department's household survey, which shows a record high level of total employment. This survey reported an employment level of 138.3 million as of March - 600,000 more working Americans since President Bush took office in 2001.

    An even bigger problem with the payroll survey is the evolution of what constitutes work. We can think of the payroll survey as counting all workers at traditional firms, plus some workers at start-up companies who have payroll records. But the payroll survey doesn't count individuals who are self-employed - despite the fact that their ranks have surged by at least 650,000 in just two years.

    Then there are limited liability companies, a new form of business the Joint Tax Committee says is growing at an annual rate of 34 percent. Consider, too, the rise of consultants, like a marketing executive who was once on the I.B.M. payroll but who has switched to a freelance consulting role with I.B.M. None of these employees are counted in the payroll survey.
The essay ends with a prior example of the Labor Department inaccurately determining the number of jobs --one that appeared to have enormous consequences for the first George Bush:
    This is not the first time the survey has been off. That's why the Labor Department warns against using the real-time payroll figures in the footnotes of its monthly release. In 1992, the media proclaimed a jobless recovery based on preliminary payroll data. Only later did benchmark revisions correct the data that the public sees today, which show the net creation of 900,000 jobs in the year prior to the 1992 elections. The next major payroll revision won't occur until January 2005.