The employment debate

Last week I blogged about the debate over productivity numbers. This week it’s the employment numbers that are being questioned. Amity Shlaes makes a good case that the accepted statistics are overestimating the unemployment rate — though, as she points out, this affects the productivity debate. The good parts version:

Skeptics charge that government data are imprecise and that they obscure the true economic pain that comes as manufacturing jobs disappear. The skeptics are correct–the data are not perfect. The problem, however, is not one of right versus left but of old versus new. The methods Washington uses to collect these numbers were determined in a calmer economy where people worked for one company all their lives…. [T]he trouble with government data is that they have a hard time recording the good news. The first example of this is the much-debated Household Survey, a poll that phones families at home to inquire about employment status. The survey has shown strong employment lately so the Bush critics tend to argue that it is too positive. But the opposite is probably the case. When someone does not answer at home, the phone pollster simply dials another number. And in the era of two-parent employment, houses where no one is at home are more–not less–likely to be houses where the adults work. The analysts try to compensate for this but the study has a bias that causes it to miss employment, not exaggerate it. Then there is the Establishment Survey, a measure that focuses on collecting employment data from workplaces. Its lower numbers have made it a favorite of opponents of President Bush. But the survey sometimes fails to capture self-employed contractors and entrepreneurs–a ubiquitous type in the Staples economy. Well aware of such problems, officials have created a meter to measure “births” and “deaths” of companies but have not yet perfected that measure. David Malpass of Bear Stearns thinks the federal data fail to take into account the degree to which companies are now contracting out work. The reasons for that contracting are often negative–screamingly high health-care costs for employees, the pressures of post-crash and post-Enron government regulation. But the consequence is that workers may be under-recorded. Malpass points to other data that indicate hidden growth or hidden growth potential. Non-farm proprietors’ income, a measure that looks at the profitability of unincorporated business, is up strongly; the growth outpaces late-1990s rates. The number of self-employed in the Household Survey has risen sharply as well. This suggests a strong recovery, since new businesses are an engine of U.S. growth. Now we come to another big measure: productivity, which was at a disconcerting high of 9.4 percent last quarter. The formula for determining productivity is output divided by labor and other inputs, more or less. So if the statisticians are undercounting labor, productivity may be less impressive than advertised.

Combine Shlaes’ analysis with Stephen Roach’s analysis, and one has to conclude that the productivity numbers are probably exaggerated a bit.