February 22, 2004

Note: The Fed's View on the Household vs. the Payroll Employment Survey

Population growth estimates, immigration, and the household vs. payroll employment survey: The Federal Reserve's view:

Economic View: Two Tales of American Jobs: ...the Federal Reserve has just thrown cold water on the household data. It concludes that the gloomy payroll data is essentially accurate and that the household survey is probably off base. "I wish I could say the household survey were the more accurate,'' Alan Greenspan, the Fed chairman, said in his testimony at a House hearing on Feb. 11. "Everything we've looked at suggests that it's the payroll data which are the series which you have to follow.''

To test the self-employment theory, the Fed adjusted the household survey by taking out all the kinds of workers who do not show up on the payroll survey - self-employed people, but also farm workers and family workers in family-run companies. Even then, Mr. Greenspan said, the discrepancy remains large. The Fed's conclusion was that the household survey's results have been inflated by overestimates of population growth. Because the household survey is a sample, the Bureau of Labor Statistics infers the total change in jobs by multiplying the ratio of employed to unemployed workers in the household survey by its estimate of the total population. If the population estimate is too high, the estimated number of jobs will also be too high.

The Bureau of Labor Statistics bases its population estimate on the 2000 census, but it updates that estimate yearly with data on births, deaths and immigration. Immigration numbers are largely guesswork, however, because so much immigration is illegal. Fed officials suspect that the immigration estimate is inflated, because it fails to reflect tighter immigration controls after Sept. 11, 2001, as well as declines caused by the economic slowdown...

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Comments

This is not the first time the Fed has looked at the dichotomy. The NY Fed analyzed the issue in 1999 ("Explaining the Recent Divergence in Payroll and Household Employment Growth" -- http://www.ny.frb.org/research/current_issues/ci5-16.pdf).

Their conclusion was that the household survey can indeed under count employment numbers -- but not necessarily in a good way. The champions of the Household survey (i.e., Postrel et. al.) overlook an important distinction between the two surveys -- one measures jobs, while the other measures employed persons: The New York Fed noted why this matters:

"The employment increases reported in the Payroll survey are likely to exceed those reported in the Household survey because the payroll survey counts the number of jobs in the economy while the household survey counts the number of employed people. Since many workers hold more than one job, the payroll survey would be expected to yield higher estimates of employment" (emphasis added).

You read that correctly. It is not that the Payroll survey under counts employment -- according to the NY Fed, it over counts it.

Posted by: Barry Ritholtz on February 22, 2004 02:20 PM

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thoughts on household vs payroll at rjwaldmann.blogspot.com

Posted by: Robert Waldmann on February 22, 2004 02:40 PM

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I would think that a competent someone should (already have) compute(d) corrected unemployment rates based on the household surveys using reasonable assumptions, instead of those used by the BLS. It is time the American electorate is served some serious statistics on which to make their political decisions in 2001.

Surely, stats based on survey responses are inherently inacurate. But worse, they are subject to more or less unvoluntary tampering by politically motivated administrations. I can only imagine the trouble honest BLS employees have gone through for trying to point out ways to produce a more reliable unemployment rate...

Better yet, we should find of ways to isolate BLS statistics from political influences, whoever in in the White House. Because if the larger public becomes aware of this one day, what will be the effect on the credibility of economists, deservedly or not, and even democracy in general? Being from Europe, I can tell you a lot about how corrosive to democracy generalized political cynicism can be.

Posted by: Jean-Philippe Stijns on February 22, 2004 02:48 PM

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Jean-Phillippe Stijns:

Absolutely no offence intended. You post some good stuff here. But the American people didn't decide the election in 2001, though perhaps they will get a chance to retrospectively decide it in 2004. The election was decided in 2000, since any further lengthy delay would have been "unconstitutional", so the election was not sent to the House of Representatives in 2001, which is a clearly an outmoded provision in the U.S. constitution. Remember?

As for "unvoluntary tampering", this is a new addition to the lexicon of political behavior, though perhaps it is a good one, given the level to which standards have sunk and the extent to which sheer cognitive dissociation has been raised to the status of the reigning ideology. But traditionally, the reputation of the economic statistics bureaus of the permanent U.S. government, such as BLS or BEA, has been a good one, highly insulated from political interference, since much more depends upon an uncontaminated source of reporting on such matters than the party line of the day. Perhaps Prof. DeLong, who is vastly, virtually infinitely, more expert about such matters than I, could offer his testimony on the question. But if such a reputation were to prove no longer warranted, that would itself be a dire indicator of how deep a trouble we are in.

Why do you think that the corrosive effects of cynicism upon political democracy are a strictly a European matter? Is it because you are living in your adopted country of residence still with European goggles on? Cynicism, the reduction of social reality to its sheer givenness, stripped of any normative claims or pretentions, save that of the rights and interests of the disillusioned one, has long since become so wide-spread in the advanced "industrial" democracies as to have become itself tantamount to the reigning ideology. At any rate, those who hold power know that the production of disbelief can be an even more powerful stategy than the engendering of belief.

Posted by: john c. halasz on February 22, 2004 05:00 PM

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"It is time the American electorate is served some serious statistics on which to make their political decisions in 2001."

The electorate does not base the decisions on statistics. The result will be due to the collective experiences of all voters. And that's bad news for Democrats, because we're in a fairly strong economy right now.

Posted by: Patrick R. Sullivan on February 22, 2004 05:07 PM

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"The electorate does not base the decisions on statistics. The result will be due to the collective experiences of all voters. And that's bad news for Democrats, because we're in a fairly strong economy right now."

With $200 million of advertising, Bush might even persuade the American people of that.

Posted by: Barry on February 22, 2004 05:52 PM

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Jean-Philippe Stijns: re tampering with statistics

I'm from Europe as well, and yes to the corrosiveness thing.

Regarding the definition and measurement of unemployment, the US method is consistent with the ILO framework. In Germany, which has traditionally been using a broader definition more closely matching the U-6 BLS figure, which is around 11% as opposed to the official 5.6% U-3 figure, the administration has floated the idea to use the ILO procedure as well, to make its unemployment rate of 10% more comparable to international standards. If you read German (or try some translation service like http://babel.altavista.com/tr for humorous results -- "IL east and pool of broadcasting corporations" is the "ILO standard"), here is the link to the Spiegel article:
http://www.spiegel.de/wirtschaft/0,1518,druck-286912,00.html

The German labor agency has restructured (stripped?) their website, so I cannot find the statistics momentarily. The article speaks of 500,000 to 600,000 fewer unemployed under the new method, which would probably reduce the rate by between 1 and 2 percentage points.

Perhaps the German administration, which has run on a promise to drastically reduce unemployment pre-2000, has grown frustrated of their notoriosly high unemployment rate, which is often contrasted to the significantly lower US rate -- which is measured differently. Now apparently they decided it's time to doctor the perception. (Not that it will work.)

Posted by: cm on February 22, 2004 07:09 PM

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The Fed's story's not credible. Population growth in the year through January in the BLS numbers was already at the low end of historical experience. To get the adjusted household number -- which shows about a 1 million annual increase in jobs -- consistent with the establishment number -- which shows zero growth -- you would have to postulate that population growth in the past year was really the lowest ever recorded by a significant margin. Considering that the modest growth shown in the adjusted household number is much more consistent with all other labor market related data, there is no reasonable way you can make such an extreme claim.

Posted by: Bob on February 22, 2004 08:40 PM

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Bob,

With a bad economy it's been noted before by many immigrants and those that deal with them that cross border traffic has lessened. There just aren't as much demand for them to fill. Since population growth in America is largely correlated with illegal immigration nowadays, it's entirely credible that a slump in the jobs market would cause a temporary lull in people looking for work here from across the border.

Posted by: Oldman on February 22, 2004 09:48 PM

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The growth rate of the Hispanic population reported by the BLS in the year through January was 2.3%. That was the lowest growth in 30 years. They slashed the assumption on immigration growth in the population revsisions contained in the last employment report. If you want to explain the household/establishment gap by assuming that that 2.3% number is massively overstated (which you would have to do given the small share of the total population Hispanics make up), you would have to postulate numbers that are way, way outside any historical precedent. Maybe that's what's happening. But why make extreme assumptions on population to bring the household survey in line with the establishment when it is the establishment that is far out of line with everything else -- claims, consumer confidence, hiring surveys, ISM, etc.

Posted by: Bob on February 23, 2004 05:14 AM

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"I would think that a competent someone should (already have) compute(d) corrected unemployment rates based on the household surveys using reasonable assumptions, instead of those used by the BLS. It is time the American electorate is served some serious statistics on which to make their political decisions in 2001."

I was doing this for a while, called it the "apples to apples" unemployment number. Other people did similar numbers, there wasn't large interest in them at the time.

Posted by: Stirling Newberry on February 23, 2004 06:30 AM

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"With $200 million of advertising, Bush might even persuade the American people of that."

He's confusing "strong" with "rank", as in odor. My Bearish conservative friends are apoplectica about the erosion of the value of the dollar. And these people would last have voted for a Democrat somewhere in the 1830's.

Posted by: Stirling Newberry on February 23, 2004 06:33 AM

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Good grief, "Bob," whoever he is, thinks that Alan Greenspan, who, whatever else you may think about him is a data maven of great repute, is responsible for a non-credible story on the gap between payroll and household surveys.

He then backs up this rather remarkable piece of denial by claiming that all the other indicators are that there is a huge army of uncounted jobs.

Me? I say that "Bob" and all the enablers who think that the household survey has suddenly become the more accurate version are the ones who lack credibility.

Posted by: howard on February 23, 2004 07:49 AM

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"Uncounted jobs" means off book jobs. I am more than willing to believe that the grey market for jobs has grown during the recession - it always does. So does the black market for jobs. To say "take up crank manufacturing! business is booming, booming, booming!" is about what the Republicans are reduced to.

Grey market and black market jobs are inherently unstable and a sign that there is insufficient consumer demand versus investment demand - but, we already knew that. It's also a sign of mispricing of labor costs. But, we already knew that too.

The question, which the Republicans are dodging by keeping the argument over whether the economy is doing "well enough" to keep Bush in office is simpler, and far more dangerous:

Given that there has been a structural shift in the economy - where is the investment supply going to come from to produce employment at sustainable wages? If not, then who is going to pay for the structural change by reduced consumption demand, or reduced investment demand? If not this, then how long before America is hit with decoupling of the value of money from the value of commodities - id est hyper inflation, hyper devaluation?

Those are the real questions. That the economic climate is different is beyond dispute. That the jobs of the late 1990's are not coming back is beyond dispute. That nothing has been done to create a new supply of jobs - or investment supply - can be seen from the obvious numbers.

The American people are going to want answers. Someone should start coming up with some of them.

Posted by: Stirling Newberry on February 23, 2004 08:08 AM

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> The result will be due to the collective experiences of all voters. And that's bad news for Democrats, because we're in a fairly strong economy right now.

There's a semantic disjunction there, of course, since the set of people in fairly strong economic circumstances is a small proportion of the set 'all voters'.

I presume that Patrick's 'we' referred to the small number of beneficiaries (and benefactors) from the Bush side of the fence. Otherwise it's more of the usual bunkum.

(I'd also question PS's ability to channel the 'collective will' of all voters, given his past statements, unless he's been converted to Jungianism while we weren't looking.)

Posted by: ahem on February 23, 2004 03:41 PM

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Stirling --a nice encapsulation that rings true ( mostly) for me.
" That nothing has been done to create a new supply of jobs - or investment supply - can be seen from the obvious numbers."
It is here that some Repugs dig in and wave 'the household' numbers by way of refutation. It's here that Bush visits NuAir in an effort to dramatize a "new supply of jobs".
There Are some that find this convincing, --even reassuring. The noise about offshoring is coming from those spoiled-brat, over-paid IT workers who should just pick up a shovel and start working like the rest of us.

"We already knew that"

Only some of us apparently know (anything) and the rest of us trust in offices like The President of the United States for their assurances.
There are other numbers beside the unemployment numbers that weigh in on this issue and I was surprised to read AG's pacifying remarks on Consumer Debt.

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