As soon as the US government released the unemployment results for September showing that nonfarm employment increased by 114,000 (anemic) but yet the rate of unemployment dropped substantially from 8.1 to 7.8 many of the conservative politicians and econimic analysts cried foul. Jack Welsh, the former GE CEO tweeted"If you can't debate then you fix the numbers" and a CNBC personality said: "I told you that they would get the number below 8% just before the elections". All of the above comes under the category of sour grapes. No one who knows anything about the BLS would ever make such an accusation because it is baseless and is something that will be next to impossible to achieve . Over 50 different individuals work on these figures and not a single one has the power to manipulate them. The following is a great explanation of what the unemployment figures mean, as presented by Greg Manikw one of "star" economists in the US.
If you go to the recent release from the BLS, you can find these two sentences a few paragraphs apart:
Total employment rose by 873,000 in September.
Total nonfarm payroll employment increased by 114,000 in September.
To a layman, this may seem confusing. The first statement suggests a robust labor market, the second a more lackluster one. What is going on?
The issue is that there are two surveys. The first estimate of employment comes from the survey of households; the second is from the survey of establishments. I thought readers might like to hear what my favorite intermediate macro textbook says about this issue. Here is an excerpt:
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Because the BLS conducts two surveys of labor-market
conditions, it produces two measures of total employment. From the household
survey, it obtains an estimate of the number of people who say they are
working. From the establishment survey, it obtains an estimate of the number of
workers firms have on their payrolls.
One might expect these two measures of employment to be identical,
but that is not the case. Although they are positively correlated, the two
measures can diverge, especially over short periods of time. A particularly
large divergence occurred in the early 2000s, as the economy recovered from the
recession of 2001. From November 2001 to August 2003, the establishment survey
showed a decline in employment of 1.0 million, while the household survey
showed an increase of 1.4 million. Some commentators said the economy was
experiencing a “jobless recovery,” but this description applied only to the
establishment data, not to the household data.
Why might these two measures of employment diverge? Part of the
explanation is that the surveys measure different things. For example, a person
who runs his or her own business is self-employed. The household survey counts
that person as working, whereas the establishment survey does not because that
person does not show up on any firm’s payroll. As another example, a person who
holds two jobs is counted as one employed person in the household survey but is
counted twice in the establishment survey because that person would show up on
the payroll of two firms.
Another part of the explanation for the divergence is that surveys
are imperfect. For example, when new firms start up, it may take some time
before those firms are included in the establishment survey. The BLS tries to
estimate employment at start-ups, but the model it uses to produce these
estimates is one possible source of error. A different problem arises from how
the household survey extrapolates employment among the surveyed households to
the entire population. If the BLS uses incorrect estimates of the size of the
population, these errors will be reflected in its estimates of household
employment. One possible source of incorrect population estimates is changes in
the rate of immigration, both legal and illegal.
In the end, the divergence between the household and establishment
surveys from 2001 to 2003 remains a mystery. Some economists believe that the
establishment survey is the more accurate one because it has a larger sample.
Yet one recent study suggests that the best measure of employment is an average
of the two surveys.
[George Perry, “Gauging Employment: Is the Professional Wisdom
Wrong?,” Brookings Papers on Economic
Activity (2005): 2.]
More important than the specifics of these surveys or this particular episode when they diverged is the broader lesson: all economic statistics are imperfect. Although they contain valuable information about what is happening in the economy, each one should be interpreted with a healthy dose of caution and a bit of skepticism.
18 comments:
According to our recent polls our unemployment rates dropped just before the elections. The major issue we have seem to be how reliable these surveys we use are. Each survey will estimate employment from households and employment from establishments. It seems to be a good way of acquiring information for economic employment debates but it also seems to have holes in this system. People who run their own business are not included to these establishment surveys so that number will always differ. It also goes to show that if someone is employed with two jobs they will show up under two establishment polls but if living under one roof, they will only show up once under the household poll. Another major factor that seems to have changed the surveys is the newer businesses tend to estimate their employers. Population is forever changing and immigration both legal and illegal will play into both sides of our polls used. In conclusion there is no definite way to calculate the perfect employment rates. There will always be either a lesser or greater amount weighing each side.
I believe the most accurate way to estimate employment numbers is through an average of the two statistics. Although in some cases, one of the two surveys may be a more accurate description of unemployment, both have to be considered. Each has their own flaws, but when combined, these flaws become less substantial. It is completely irrational for people to believe that the government can "bend" the numbers in order to make it seem like conditions are better than they are. The Bureau of Labor Statistics contains many unbiased workers who do not associate with any particular party. What the Bureau finds is the most accurate representation of the condition of employment in the United States, people just have to accept that it is a government agency that is finding these numbers.
If we average the two statistics together. i beleive that the U.S. will come up with a correct number of the rate of emoployees that this country has. even if both systems have mathematical errors, dividing it between two systems would reduce the mathematical errors by two. I also beleive that there are still two different ways because of the differences in the political parties. The Obama administration ovbiously wants to show the household survey because it shows a positive amount of jobs that have been created. Romney on the other hand would rather use the establishment survey due to its loss of jobs during the time Obama was president.
I feel that in order to get a fair opinion of the unemployment rate you should take the two surveys and average the two. I feel that if you do this you will get a more accurate opinion when you are trying to find the unemployment rate. If you take one survey over the other you will not get a fair and accurate estimate of the unemployment rate. However, I feel that if you take the establishment survey is a better survey than the household survey because it counts how many people that are on the payroll for each company. If you work two jobs then you will be counted twice since you are on the payroll of two companies. However, it is not accurate due to the fact if you are a entrepreneur then you are not counted on the payroll. The only reason why unemployment rates dropped is because of the election. The rates have been at there highest for a couple of years not. I feel that after the election that the rates will increase again and people will be out of jobs and income. Overall, there is no definite solution to find the unemployment rates due to the fact of legal and illegal immigrants coming to this country. That is why you should average the two surveys to find an average amount of the unemployment rates.
Both surveys are innaccurate. One will never be able to 100% accurately determine the actual employment figures; so what is the best way to determine the actual numbers? The people who have already replied say that the best way to determine the most accurate figure is to just average the two polls. I would have to agree that this would be the best way to determine the closest number to the actual number but only because of a lack of a better method. I believe that by averaging the two figures the employment number will still be way off from the actual number but until we can find a way to somehow combine the establishment survey and the household survey, determining the average is the most accurate number because the figures from the two surveys are so far apart.
I believe that you cannot measure the accurate employment figures from a survey. I think there are other methods of finding this information, but the way they went about it was not the best way. By having these surveys, they did not include people who run their own businesses, so the number is wrong. I believe we need to have surveys and have statistics and average them together. This, to me, would be the best way of determining the accurate employment figures.
Having one survey does not accurately state the figures of employment in my opinion. In these surveys, everyone isn't included. For example, people who own and run their own business. Having more than one survey and averaging them together would give you a more accurate number of the employment rate although it still won't be 100% correct. This is the best method to use as of now.
The big gap between the two numbers makes it hard to find the correct figure that we would like to reach. However, the best known approach actually is to average the two numbers, just to get an approximate answer. We can only work with the information that is given, whether the answer is accurate or not.
i believe that the two ways of surveying were not the best way. The results were not only inaccurate but there was a big difference in the results. I thought it was interesting how it mentioned that unemployment rates went down because of the election. I feel that there are two surveys so that candidates can use the ones that will benefit them as an arguing statement. After the election the unemployment rate will probably increase again.
The issue with both surveys is that neither accurately represents the employment rate in the United States. One survey--the establishment survey--measures the number of individuals on company payroll; this survey, unlike the household survey, does not measure those who are self-employed, business owners, working off the books, etc. In addition, these are surveys, which means that they cannot be entirely trusted for their factual content. If a surveyor simply went door to door, begging the question, "Are you employed?" it would be simple for individuals to answer, "Yes," considering the survey doesn't ask, "In what capacity?" Another question to pose is whether or not counting an individual twice for being employed at multiple companies is an accurate poll for the employment rate. All in all, there are more efficient surveys that could be taken for more accurate results. I'm not sure if averaging the two results would give any more of an accurate result, but if these are the closest results we can get for unemployment rates, then it seems to be the only option we have for any type of figure, and whichever survey we deem "more reliable" will be the one that tells us the "real state" of the economy.
Louie Fortes said...
I do not think any survey will be accurate unless the people doing it are only curious about the results, not that the statistic is in their favor. It could just mean that employment from establishments are doing much better than households but for the people that employ themselves in their household have a higher income since they live at their business. Being employed doesn't make you rich so I would also think that salary should be included in this statistic.
I believe that there is not going to be a way of finding the exact percentage of employment. People who run businesses are not accounted for in employment, and those that work two jobs are counted as two different people working. Also, businesses are not acquiring the right amount of workers to help this percentage. There is no way that we will ever know the exact unemployment rate.
The biggest issue during election year is that everyone wants to find a reason to support or not support the president. I believe that people, who disagree with President Obama and have incorrect knowledge about how the economy works, won’t accept the decrease in the unemployment rate. In my opinion, statistical results will never be perfectly unbiased. I disagree with averaging the two surveys to get the unemployment rate, because then it will be farther from the actually rate. I believe we should just keep in conscious these factors when opinionating about the unemployment rate.
When the U.S. government released the unemployment numbers for September 2012, it was very interesting and surprising to learn that non-farm employment had increased by 114,000. The rate of unemployment went down from 8.1 to 7.8. There were many analysts who did not see this coming and instead of admitting their wrongs, have tried to say that these numbers were somehow altered. With 50 different people working on the figures, none of who have the power to alter these numbers it is very unfair for people to say. I thought that it was interesting in this article how the author explains how the unemployment figures are found. There are two important numbers that go into figuring out the unemployment figures. The first number is total employment which rose by 873,000 in September and the second number is the total nonfarm payroll employment, which also increased in September by 114,000. The author goes on to explain that the first estimate comes from the households and how many members of the household are employed. The second number comes from the survey of establishments, which is the payroll count for each company. I enjoyed the article “Employment Conundrum” and enjoyed being able to learn about the unemployment figures in the United States of America.
Many people didn't see the substantial unemployment drop coming at all. And because the election is close they said the numbers were altered. The fact that they said this is just ridiculous because there was 50 people working on the numbers and non with the power to change the numbers. The conservative politicians that said the numbers were altered only said that to make Obama look badly.They just don't want people to think Obama is helping make unemployment fall so they just say those numbers were fixed so they could hurt Obama's chances during the election.
Unemployment is an issue that will always come up, and though the numbers may show that it has decreased this September it doesn’t prove to be accurate for the imperfectness in the two surveys which calculate the survey of households giving the estimate of employment and the survey of establishments. Just as the article says there may be many who have two or three jobs but be counted for 3 people. This calculation can mess up the whole data, plus Election Day is coming up causing for a more explanation to the drop, but this is for the representatives to shine to the people. When looking at numbers that come up we must all be careful to look with a skeptic mind and to be prepared for that imperfect information that those like the government in authority can twist into a good number to save their backs.
I do not think the government would go as far as changing the unemployment rates. I think the polls that they use make sense and the numbers change daily. A poll is meant to be used as a guideline, and I think that is what most economist use it as. It is hard to account for every single working citizen just like it is hard to account for every person not employed there are so many factors included such as illegal immigrants, off the book workers, family members working for their family. to use these polls as an exact figure would be almost silly. I think the best way to look at the poll is to account for the average of both polls. Considering you are not getting exact numbers regardless it seems like the most legit calculation.
Louie Fortes said...
While reading this was very interesting, I do not think unemployment depicts a countries success at all. If the top 1% is supported (less taxes) I believe that the money saved would actually cause more job growth and less unemployment than supporting unemployment from the bottom-up. Immigration causes the unemployment rate to be inaccurate as well as other factors (citizens that work off the books, people that have more than one full time job, etc). The only way to find a countries true value is finding it's nominal GDP.
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