Last week’s new unemployment numbers were bittersweet. At the same time the Bureau of Labor Statistics was declaring that the unemployment rate had declined slightly, to 9.7 percent, the government also was announcing that the economy had lost about 824,000 more jobs during the recession from April 2008 to March 2009 than Americans previously had been told. If this sounds like bureaucratic doublespeak, it is.
The government doesn’t really know the exact number of people with or without jobs. The number reported each month is based on surveys, and surveys often can have methodology issues. As it turns out, the surveys estimating the number of people with jobs reported over the past couple of years suffered from some really big problems. That’s where government falsely claiming 824,000 more jobs than actually existed comes into play. Unfortunately, those adjustments have so far been made only through March 2009, and there are strong reasons to believe the survey data since then also need to be adjusted downward.
Economists measure the number of jobs two different ways: the establishment survey that asks about 370,000 employers how many people they are employing and the household survey that asks about 110,000 people each month whether they are working. The establishment survey is often given more weight because about 40 million Americans work for the companies surveyed, a lot more than the 110,000 people interviewed in the other survey. But 110,000 people still make up a huge sample (a large survey for a presidential election might involve 2,000 to 3,000 people), and it is hard to ignore the results. The household survey is also what is used to calculate the unemployment rate.
The problem is that the two surveys have reached different estimates, with the household survey showing a significantly greater drop in the number of jobs than the establishment survey. It turns out that there might be a simple reason for that. For the survey of firms, the list of firms surveyed doesn’t change very often. Thus, the Bureau of Labor Statistics, which puts these numbers together, can only guess at the number of jobs created by new firms because it doesn’t even know how many new firms have been created each month. To get around this gap in the data, the bureau makes an assumption that the jobs created at new companies are about equal to the jobs lost at companies that go out of business.
That assumption hasn’t come close to being right during the current recession. The error in estimating the number of jobs from April 2008 to March 2009 was 10 times greater than the average error over the preceding eight years. Typically, the government error would underestimate the number of new jobs by 80,000, but this time, it overestimated the number of jobs by more than 800,000.
No one will know what the error rate has been with the establishment survey from April to December 2009 until the numbers are revised again in February 2011, three months after the 2010 midterm elections. But a great deal of skepticism seems warranted. The establishment survey assumes that new firms generated almost a million new jobs over those nine months. At the same time, the household survey just happens to show that about a million more jobs were lost than the survey of firms indicates.
The Obama administration has focused continually on the establishment survey in making its claims about changes in the jobs numbers, but this data can be quite misleading. The bottom line is that job losses are likely to be worse than reported, not better. Future jobs claims from the White House should be taken with a grain of salt.