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Monday, March 12, 2012

Real Job Growth? Or Just People Leaving the Labor Force?

Is there really any job growth or are people merely leaving the labor force because they are discouraged and disgruntled?


I write quite a bit about employment numbers; I read most BLS publications and I pretty much know what the stuff means and I pretty much know how the BLS comes up with its numbers.  I've always liked numbers, statistics, and spreadsheets so that helps as well.

Anyway, I'm very happy to help out anyone who doesn't know what they are looking at, and I'm happy to correct anyone who is interpreting things wrongly.  

Which brings me to tonight.  I found a blog I have never seen before which contained a recently published article on jobs and unemployment.  The title of the article was "February Unemployment Rate Unchanged:  Should We Even Pay Attention?"  The writer was clearly confused about what the BLS numbers show, how the BLS calculates its numbers, and, as a result, he was skeptical that the BLS numbers show anything.  

The article was somewhat long and brought up many concerns and questions about BLS numbers, so I decided to take on those questions one at a time.  And I decided I would share my reply (replies) here as well, as I know that many people have the same questions and concerns as the blogger.  

So here are his first couple of paragraphs and my reply to him... just about that first paragraph:    

The Bureau of Labor Statistics (BLS) February, 2012 Employment Situation report is out. The “official” measure of the nation’s unemployment rate is unchanged at 8.3%. You can read it here. Now the blogosphere will delve into the numbers and issue their interpretations as to their meaning. We’ve witnessed the generally steady decline in the unemployment rate for months now and the statistics have revealed the reason for the drop has been those dropping out of the labor force and no longer counted rather than actual job creation. (Italics mine)

The February 2012 report is different from the recent pattern. The January 2012 report showed that 1.177 million people were added to the “not in labor force” category. The February 2012 report shows a decrease of 310,000 in the same category. That’s quite a turnaround. Let’s look closer.
Let's stop there for now.  I'll get back to his second paragraph and other six paragraphs later over the next few days.

I just addressed his comment (which I italicized) about whether or not job growth is "real".  I commented to his article:

Hi, Spellcheck, I just came upon your blog today and I'm going to see if I can help you out a bit.   I write a blog that concentrates on employment numbers, and I try to explain these things as simply as I can.  First of all, I would suggest that, as you don't quite understand the data, you refrain from making any decisions as to the validity of BLS/Census data until you understand what you are looking at.  

I'm just going to take the items that you've discussed one at a time and I'm going to see if I can help you out.

So here's your first statement:

"We’ve witnessed the generally steady decline in the unemployment rate for months now and the statistics have revealed the reason for the drop has been those dropping out of the labor force and no longer counted rather than actual job creation." 

May I ask you what statistics have revealed this and where they are?  

First of all, you are right that the number of people "not in the labor force" is going up, but there is real ongoing job growth.  

The BLS establishment report  (not the CPS population report which is the report that shows the unemployment rate) comes from reports from employers, both public and private.  It shows us that private employers have created 3,939,000 jobs in seasonally adjusted numbers over the past two years.  The independent ADP report which surveys private employers also comes up with an estimate of the number of private jobs added in seasonally adjusted numbers over the past two years.  Their number is 3,502,000. ADP's report for February can be found HERE.  It contains a graph which correlates the ADP job estimates with the BLS estimates, and, considering the size of the population, their numbers are surprisingly close.  Remember these two organizations use different data sources, even though both have a "sample" and apply various statistical techniques to that sample to get their numbers. 

The low number of private jobs as reported by BLS in early 2010 was 106,773,000; the low number of private jobs reported by ADP was 106,747,000.  BLS now estimates 110,711,000 and ADP now estimates 110,249,000 private sector jobs.  I'd bet on BLS as these numbers are revised over the coming months as more specific data is available.  I can explain those revisions as well if you like.

So, yes, two separate sources, one from the big bad old guv'ment and one from private-sector payroll processor ADP, both estimate that we have added millions of jobs in the past two years. 

People leaving the labor force (or just bad estimates that are readjusted) or not, we are adding many, many jobs.  

Anyway, that's just a start.  

You sound like an intelligent person, so I'll be happy to come back and explain more.  

Next (tomorrow or the next day) I will address his second issue, which relates to the huge number of people supposedly dropping out of the labor force in January.  (No, they didn't.)  

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