Employment Growth: Abuse of the Household Survey

Since Ashby M. Foote uses the following sentence:

The BLS makes adjustments and population-control revisions to each of the surveys in order to facilitate apples-to-apples comparisons.

Might we expect him to know what “population-control revisions” really means. The theme of the latest nonsense from the National Review is captured by:

But a persistent and widening gap that has now reached 3.3 million (7.9 million versus 4.6 million) and represents 42 percent of jobs created during this recovery surely deserves exploration for any underappreciated cause and effect … Clearly, the job survey data describes a more entrepreneurial-oriented economy, with small businesses and the self-employed accounting for an increasing proportion of overall economic activity and job creation. The household survey deserves more attention. For the time being, it’s where the action is.

Payroll employment as of August 2006 was up by only 2.949 million as compared to February 2001. Foote wants us to forget that the decline from February 2001 to November 2001 where payroll employment fell by 1.668 million.

As far as the household survey, the employment to population ratio stands at 63.1% as compared to 64.3% as of February 2001 and 63.0% as of November 2001. So even using Foote’s cherry picked time frame, household employment has barely risen as fast as population – which is not much of a recovery. So how does Foote get such a large increase in the reported number (actually, the reported increase appears to be a bit larger)? Ah, that infamous footnote that most NRO writers never read and Foote does not understand:

Data affected by changes in population controls in January 2000, January 2003, January 2004, January 2005, and January 2006.

Consider the fact that reported employment was 136.4 million in December 2002 but appeared to jump to 137.4 million in January 2003. Did the employment to population ratio jump accordingly? Let’s see, it was 62.4% in December 2002 and 62.5% the next month. So very little of this increase can be attributed to anything other than some fluke coming from “changes in population controls”. Foote tries to argue that these changes are designed “to facilitate apples-to-apples comparisons”, which is an incredibly absurd statement to make.

Foote puts forth another National Review canard – the premise that we’ve seen massive increases in self-employed entrepreneurs. The Bureau of Labor Statistics tries to capture how many people are self-employed and as we can seen in this table, the number of unincorporated self-employed for 2001 was about 9.12 million, while this number for 2004 was about 9.47 million.

Elise Gould addressed the issue that Mr. Foote fails to grasp back on December 12, 2003 in Measuring employment since the recovery: A comparison of the household and payroll surveys:

The payroll survey provides a more accurate picture of employment trends in the U.S. economy. In addition to being significantly larger (with a sample size 600 times greater than that of the household survey), it is also benchmarked annually to unemployment insurance tax records and less likely to be subject to large revisions or misreporting. According to the payroll survey, employment has fallen by 726,000 jobs since the end of the recession in November 2001 and employment has fallen by 2.4 million since the start of the recession in March 2001. In contrast, the household survey indicates that employment has risen by 2.0 million since the recovery began and by 600,000 since the start of the recession. Adjustments for differences between the two surveys (e.g., to account for self-employment or multiple job holding) do not affect the difference in the trends of the two surveys since 2001. Nonpartisan government experts agree that the payroll survey employment numbers are more reliable than those from the household survey, despite Secretary of Labor Elaine Chao’s erroneous claim that experts do not know which survey is better … some analysts continue to mistakenly use the household survey to measure employment.2 Others incorrectly report trends in the household survey, while ignoring the discontinuity in the series that results from the January 2003 population adjustment. The payroll survey’s more precise measure of employment trends provide a clear advantage to the more volatile and less accurate household survey numbers … A second critique of the payroll survey is that it leaves out self-employment. However, because the household survey employment reports do not distinguish between the self-employed who are gainfully employed and those who are searching for work – and because the numbers of self-employed nonearners would be expected to increase during tough economic times – the omission of self-employment numbers from the payroll survey may more accurately reflect overall employment trends.

Interesting – some of the increase in self-employment may be due to workers taking less desirable lines of pursuit. But as the Bureau of Labor Statistics numbers indicate, this particular difference between the two series is only a very tiny part of the divergence between the two series. All is this should be well known by now – and yet we continue to see the same idiocy on the pages of the National Review.