Friday, March 12, 2004

Are Job Growth Numbers Antiquated?

In his Washington Times column "The confused constituency", which is chiefly about John Kerry's attempts to confuse the electorate, R. Emmett Tyrrell, Jr. explains the problem with the way job growth is being reported.

. . . the Bureau of Labor Statistics publishes data declaring job growth is low, only 21,000 new jobs in February as opposed to the forecast of 125,000.
Are these statistics sound? Mr. Kerry does not ask that question, but some economists are asking it. One, Brian Wesbury, a man distinguished for his reading of economic trends and business achievement, has looked carefully at the economy and found job growth where others have failed to look.
Mr. Wesbury claims that in the New Economy, invigorated as it is by developments in software and technology that make founding small businesses more feasible, job creation is missed by the old way of measuring it. The old way was through the job survey called the Establishment Survey. The new way is through the survey called the Household Survey.
The Establishment Survey takes into account business establishments nationwide by measuring payroll employment. 'But,' writes Mr. Wesbury in the April issue of the American Spectator, 'payrolls are not where the action is today. The real growth is entrepreneurial. Self-employment and Limited Liability Corporations (LLC) are growing like weeds, and these types of employment do not fit into the normal payroll.' They do fit into the Household Survey.
Whereas the Establishment Survey tells us that, since the end of the recession in November 2001, payroll jobs have declined by 718,000, the Household Survey indicates 1.9 million jobs have been created. Naturally, Sen. Kerry, the candidate of confusion, relies on the Establishment Survey. I doubt he has ever paid any attention to the Household Survey.
Mr. Wesbury believes he should. It not only calculates job growth more accurately than the other survey, it also has tracked a trend. For two decades, self-employment has represented an ever larger percentage of post-recession job growth. In the months following the 1982 recession, self-employment accounted for 5.4 percent of job growth. In the months following the 1991 recession, it accounted for 9.3 percent of job growth. "Since the recession ended in November 2001," Mr. Wesbury writes, "total household employment has climbed 2.1 million and self-employment has grown by 644,000 ... 31.1 percent of all job growth in the Household Survey."
Is it possible to have the healthy growth we now have and a decline in jobs? The understandably confused are confused by this, as well they should be. If Mr. Wesbury is right, the confusion is caused by economic statisticians' failure to keep up with our dynamic economy. The economy is growing, and so is the job market.

This is something that I have intuitively suspected and have heard of, though this is the clearest presentation that I've seen. Kudos to Mr. Tyrrell for bringing this to light.

No comments: