Initial claims for unemployment insurance for the week ending August 20, 2010 were 500,000. This is an underestimate of people who lost jobs that week according to the US Department of Labor Employment and Training Administration as it doen't include voluntary separations from the work force. Since some of these people may have held more than one job, the number of jobs lost last week is well over 500,000. That's over 2 million jobs lost per month. This figure has been approximately constant since October of 2008. So how comes it that the government claims in the Employment Situation the following:
Total nonfarm payroll employment declined by 131,000 in July, and the unemployment rate was unchanged at 9.5 percent, the U.S. Bureau of Labor Statistics reported today. Federal government employment fell, as 143,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment edged up by 71,000.
How could nonfarm payroll employment decline by 131,000 when there were 2 million initial claims for unemployment insurance? It boggles the mind. Is the government lying to us? Is the government cooking the books? Does the government not want us to know how bad the jobs situation actually is in this country?
I'll make the case for the government squaring the circle between initial unemployment claims and the Employment Situation report. The government measures the number of jobs gained or lost by means of a monthly survey called the Current Employment Statistics (CES) or payroll survey.
From the Bureau of Labor Statistics website:
Each month the Current Employment Statistics (CES) program surveys about 140,000 businesses and government agencies, representing approximately 410,000 individual worksites, in order to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls.
So they survey a bunch of businesses and ask them "how many jobs did you add or subtract last month?" Since this is a statistical survey, they are not gathering exact figures although they report them as such, and, depending on how they design the survey, there are a whole lot of things that could go wrong. For example, how do they construct the sample? It is pretty well known that jobs are mostly created by small business. So do they overweight the sample in terms of small business to give a more favorable impression of the number of jobs created? It's also well known that mass layoffs are usually done by large scale businesses. So do they underweight the sample of large businesses to make it appear that not so many jobs have been lost?
Be that as it may, what the government is actually supposed to be doing to find out the number of jobs added or subtracted is to take the number of jobs gained as figured from their survey and subtract the number of jobs lost. This is supposedly how they arrived at the figure of 131,000 jobs lost last month. Bear in mind this is only an estimate or supposedly is so. Therefore, according to the payroll survey and, using the figure of 2 million jobs lost according to the number of initial unemployment claims filed, there were 2,131,000 jobs lost and 2 million jobs created last month. Subtracting the two figures we come up with 131,000 jobs lost. But how much confidence can we have in this figure? Not much. Statistically, there is a huge margin of error. Not to mention the fact that the government mixes exact figures with statistical figures that have an associated margin of error. The 141,000 census workers laid off by the government is an exact figure. The 71,000 workers added by the private sector supposedly is not.
In addition to the shoddy way the government computes jobs lost or added and then derives the rate of unemployment, they keep that rate down by every month eliminating workers from the work force. And they measure unemployment rate according to a whole other survey the so-called household survey. These two surveys should be integrated into one comprehensive and unified set of figures. The fact that two different government agencies are responsible for unemployment rate on the one hand (the Employment and Trainig Administration) and employment situation on the other (the BLS) is ridiculous.
From the Flawed BLS jobs Report:
The household survey, in contrast, estimates the nation's employment based on responses from interviews with approximately 60,000 households; the BLS then inflates the survey data by the most recent estimates of the population. Unlike the payroll survey, the raw household survey data are not revised, but the population estimates used to inflate them are occasionally updated to incorporate new information from censuses and new estimates of immigration.
Beyond these differences, the two employment measures also differ in concept. First, the payroll survey counts the number of jobs, while the household survey counts the number of employed individuals. Therefore, a person with multiple jobs will be counted several times in the payroll survey but only once in the household survey. Second, their scopes are different; while the payroll survey covers only wage and salary workers on nonfarm payrolls, the household survey covers those individuals as well as agricultural workers, the self-employed, workers in private households, unpaid family workers, and workers on unpaid leaves. Finally, payroll employment includes wage and salary workers under the age of 16, while the household survey does not.
So the household survey estimates the number of employed individuals while the payroll survey estimates the number of jobs gained or lost. An individual worker may hold one or more jobs. So just because the number of jobs is growing does not mean that there are more workers actually being employed. It could be the same worker taking on more jobs. Conveniently,the BLS shifts people out of the labor force monthly which has the effect of keeping the unemployment rate down since that rate is computed as the number of "legitimately" unemployed people divided by the number in the labor force times 100. The unemployment rate has remained relatively constant only because the number shifted out every month is balanced by the number shifted in. But does this make any sense? It is actually an acknowledgment that more people are losing their jobs every month, and the only thing that keeps the unemployment rate from going up is the fact that the labor force is being reduced on a monthly basis.
The following is a pretty good explanation of this phenomenon:
FAQ: How can the unemployment rate fall if the economy is losing net jobs, especially since the population is growing?
This data comes from two separate surveys. The unemployment Rate comes from the Current Population Survey (CPS: commonly called the household survey), a monthly survey of about 60,000 households.
The jobs number comes from Current Employment Statistics (CES: payroll survey), a sample of approximately 400,000 business establishments nationwide.
These are very different surveys: the CPS gives the total number of employed (and unemployed including the alternative measures), and the CES gives the total number of positions (excluding some categories like the self-employed, and a person working two jobs counts as two positions).
A couple of key concepts (from the BLS):
The CES employment series are estimates of nonfarm wage and salary jobs, not an estimate of employed persons; an individual with two jobs is counted twice by the payroll survey. The CES employment series excludes workers in agriculture and private households and the self-employed.
And the CPS:
The CPS estimate of employment is for the total number of employed persons. Included are categories of workers that are not covered by the Current Employment Statistics (CES) survey: self-employed persons, private household workers, agriculture workers, unpaid family workers, and workers on leave without pay during the reference period. Multiple jobholders are counted once in the estimate of total employed.Unemployed persons include those who did not have a job during the reference week, had actively looked for work in the prior 4 weeks, and were available for work. Actively looking for work includes activities such as contacting a possible employer, contacting an employment agency or employment center, having a job interview, sending out resumes, filling out job applications, placing or answering job advertisements, and checking union or professional registers.
So in July, the headline CES number showed a loss of 247,000 non-farm private jobs (by the definitions above). The CPS showed a decline of 155,000 employed people.
These two surveys are almost always different, and both are useful.
But the unemployment rate fell, even though the CPS showed a decline in employed people. How can that be?
The CPS also showed a decline in the Civilian Labor Force Level by 422,000. And a decline in the number of unemployed people (U-3) of 267,000.
The unemployment rate is a ratio, with the numerator the number of unemployed, and the denominator the Civilian Labor Force - so these changes in both number lowered the unemployment rate to 9.4%.
If you want more details, see Monthly Employment Situation Report: Quick Guide to Methods and Measurement Issues
Although the CPS showed the labor force declined in July, over time the labor force will continue to grow - probably around 1.5 to 2.0 million people per year on average (once the economy starts to recover), and the CES will probably need to show the addition of around 125,000 jobs per month just to keep the unemployment rate steady (estimates vary of this number).
So remember, the jobs and unemployment rate come from two different surveys and are different measurements (one for positions, the other for people). Some months the numbers may not seem to make sense (lost jobs and falling unemployment rate), but over time the numbers will work out.
There is even another government survey, the Job Openings and Labor Turnover Survey (JOLTS), which gives a better picture of the situation. The JOLTS survey comes up with figures like the number of uemployed persons per job opening. Currently, there are 5 unemployed job seekers for every opening. Also this: Since falling by 8.4 million between December 2007 and December 2009, employment has grown by 785,000 through June 2010. Frank Thomas has computed how many jobs need to be created each month in order that the unemployment rate be reduced to "normal" (5%) in a reasonable amount of time.
The JOLTS data figures the total number of new hires minus the total number of separations (both voluntary and involuntary) from the work force, and based on that the net jobs gained or lost per month. If total hires outnember total separations, employment has increased and vice versa. There were 4,254,000 hires and 4,351,000 separations in the month of June 2010 which gives a net of 97,000 jobs lost. This accords more closely with the figure for initial unemployment claims of about 2 million per month which underestimates the number of jobs lost per month according to the BLS. So according to this data there were over 2 million voluntary separations from the workforce, a number that defies credulity in a recession.
The following is the relevant graph from JOLTS:
The government really needs to get its facts and figures together better and make it clear that the number of jobs lost or gained each month is a net statistical and not an absolute figure. The economy is shedding jobs like a sieve, but, according to JOLTS, jobs are also being created at a huge pace. What kinds of jobs these are is anybody's guess. The economy might well be shifting from high level manufacturing and professional jobs to jobs at Starbucks, McDonald's and Wal-Mart. As far as the BLS is concerned, a job is a job. Replacement jobs can also be jobs of an individual's own creation. The quality of jobs out there is not computed by the government. Unemployment insurance is meant to carry the unemployed until they can find a job equivalent to the job they lost at an equivalent wage. Those jobs may be hard to find with the result that people will find themselves becoming downwardly mobile and accepting just about anything.
