September 05, 2004

Factchecking the NYT
Posted by Jon Henke

The New York Times addresses the economic debate in an editorial today--apparently they have no pundits on staff interested in economic matters--and manage--inter alia--one very glaring error.

The United States gained 144,000 jobs last month, which is just barely enough to keep up with the number of people entering the work force. True, the job numbers for June and July were revised upward, but they were still weak, and much lower than August's. There was a tiny reduction in the unemployment rate - because the work force became smaller, not because of job creation.
One is a bit surprised that paragraph passed editorial scrutiny. How, I'd ask, can the economy simultaneously "barely...keep up with the number of people entering the work force" even as "the work force became smaller"?

Which is it? Is the work force increasing in size by something close to 144,000 per month, or is it becoming smaller?

Even aside from the cognitive dissonance such a contradiction must create, there are the simple facts, and they demand a correction from the New York Times, whether they want to argue the short view (we meant last month alone!) or the longer view (we meant the average growth in the work force!).

  1. Last month: the labor force decreased in size last month by 152,000.
  2. Average Civilian labor force growth since January, 2001: ~89,022


In the former instance, there simply was no "growth in the labor force" as the New York Times article alleges. In the latter.....well, 144,000 is clearly quite a bit larger than 89,022.

There is a second "partial truth" worth pointing out from the New York Times editorial.

Even with a slight acceleration in August, average hourly wages for the month are not likely to keep up with inflation (that number comes out in mid-September). As has been the case throughout the current economic recovery, wages are held down by the slow pace of job creation and, to a lesser extent, by the mainly service-oriented jobs available.
Note, please, that this story focuses on "wages", rather than compensation. Why? Well, probably because, if they focused on total compensation, their storyline would be....complicated. It would introduce a bit of nuance. And, in an editorial decrying the "current low level of the economic debate"...well, that appears to be a bridge too far.

So, here's the story on total compensation, per the Bureau of Labor Statistics:

TotComp.gif

Notice anything? For example, the fact that current total compensation is higher than....well, anything between 1994-2000?

So, maybe things aren't quite as dismal as the New York Times would have us believe. And, unfortunately, no one is served by the current low level of the economic debate....in the pages of the New York Times.


UPDATE: Econopundit fisks the thing, noting "What you don't know -- and what we're sure as heck not going to tell you -- is most economists agree the numbers we're talking about are just part of the normal business cycle."

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Comments

Any bets that the huge spike in total compensation we saw in 2000 was because of stock options being cashed? The NASDAQ reached its high water mark on March 25, 2000, and lots of tech companies offering stock options to employees woud have seen their employees cash in during the first quarter that year.

Posted by: Steverino at September 5, 2004 02:47 PM

They don't have an economist on staff. They just have a partisan hack named Krugman with the credentials.

Posted by: David R. Block at September 5, 2004 05:03 PM

The cognitive dissonance has previously been explained by people leaving the workforce: discouraged workers, people no longer qualifying for unemployment, two-income families becoming one-income. Does total compensation include benefits and does health insurance premiums factor in this?

Posted by: Wm D at September 5, 2004 11:04 PM

Wm D, the BLS keeps track of what you refer to as discouraged workers. Even counting them, the total unemployment rate is very low relative to the past 40 years. The number of discouraged workers in August was 534,000, which was about the same as Aug 2003, according to the BLS. The actual nubmer for 8/03 was 503,000. The total number of people not in the work force actually dropped from 8/03 (75,540,000) to 8/04 (75,511,000).

Two-income families becoming one income would change the unemployment rate unless the two incomes were both earned by the same person. Total multiple job holders has increased over the past year, from 7,221,000 to 7,368,000.

Total compensation includes all benefits, and yes, health insurance premiums factor into it.

Posted by: Steverino at September 5, 2004 11:49 PM

WM D: Steverino answered most of your disputes, but I'd add a couple points.


people no longer qualifying for unemployment


- - -The unemployment rate is not calculated using unemployment payments, or by measuring how many people are receiving those payments. Whether a person receives Unemployment or not is irrelevant to the survey.


"two-income families becoming one-income"


- - -As he indicated, there can be a variety of explanations, but they would be measured, if they were relevant. One instance in which it would not be measured as "unemployed" or "discouraged worker" would be if one spouse *chooses* to quit a job and stay at home, go to school, etc. My wife is in the process of doing that now, in fact. That will be one less person in the workforce, and I'll be very glad when it happens.


"Does total compensation include benefits"

- - -By definition. Total compensation is "everthing".


"does health insurance premiums factor in this"


- - -Of course. Just as they factor into inflation. It's a bit disingenuous to count the rise in health costs towards inflation, but not include the additional payments given to employees to offset that.

There is a tax incentive to paying employees in ways other than salary. So, when possible, it's done.

Posted by: Jon Henke at September 6, 2004 05:53 AM

Help me understand this...

152,000 people left the work force. And 144,000 jobs were added in Aug. And previous months were updated by an additional 76,000 jobs.

So isn't this a net swing of 372,000 in terms of the number of jobs available? And that doesn't even factor in the those leaving the work force in the months represented by the 76,000 number.

Doesn't this basically mean that, if I were looking for a job, there are now 372,000 to choose from?

And thus ultimately, isn't the real important number just the unemployment rate, which is a rough measure of how hard it is to find a job?

Posted by: NeoKen at September 6, 2004 09:28 AM

Thanks for the corrections.

Here's a shrill qualitative commentary (one month old):

Going to good friend Greg Weldon's Money Monitor of today, he looks deep into the employment survey to find the following tidbits: "Now, we add the latest input from the US labor market figures, in terms of DISTRESS showing up within the data-details, distress related DIRECTLY back to the CONSUMER, and, a STIFF expenditure-headwind. Scalpel please ...

* "Persons Who Want a Job, Have Looked for a Job, But are Discouraged ... 504,000 in June, up +5.4% during the month.
* "Multiple Job Holders ... 7.521 million, up +2.2% for the month, for a rise of 160,000 in July.
* "Those with Full-Time Primary Job, and Part-Time Secondary Job ... 3.829 million, up +5.4% from June.
* "Those with Both Primary and Secondary Jobs, Part-Time ... 1.711 million, up a HUGE +6.0% from June.

"Okay, we 'could' argue that the glass is half full, with jobs being 'taken,' and income being generated. BUT, we CANNOT envision a macro-nirvana-scenario that INCLUDES workers whose PRIMARY SOURCE OF INCOME ... is ... a PART-TIME JOB!!! The combination of DISCOURAGED job-seekers, and a sudden, sharp rise in workers willing to take multiple part-time jobs ... REEKS of desperation, in terms of GROPING FOR INCOME."
http://www.gold-eagle.com/editorials_04/mauldin080704.html

The numbers aren't bad. I meant to mention marginally attached workers, not unemployment comp (I knew there was another category and was lazy.)
http://www.bls.gov/news.release/empsit.t12.htm

It's my understanding that the stimulus is still working its way through manufacturing. I've heard anecdotally the recent hiring called a 'boomlet'. Earnings, after a boomlet, appear to be plateauing if not rolling over. And from the conspiracy files, I've read that so long as a majority are unaffected it is required for more people to live closer to poverty levels to promote oil scarcity rationing (That's the Republican view opposed to the Democrats "sharing the pain"). This makes some sense from an offshoring perspective as a shift from temperate to tropical climates. As I like to phrase it, "I lost my job to someone living in a hut." I think you can see this reflected in other Republican causes like anti-affirmative action and school choice as part of a growing sense of limited opportunity, and tax cuts as a means of securing educational and economic advantage as well as shifting the taxation burden to consumption to curb high energy consumption affluence.

Posted by: Wm D at September 6, 2004 09:45 AM

I don't think the NYT is in error:

The Work Force
= the sum of:
+ number of people who are currently employed,
+ PLUS the number of people currently UNEMPLOYED who are actively seeking employment right now.

The "work force" can become "smaller" from:
1 - death/retirement -- no longer employed or seeking employment, e.g. the number of people working decreases
2 - giving up -- not employed AND no longer seeing employment, e.g. the number of people attempting to sell their services in the labor market decreases

Number of people entering the work force
= the sum of:
+ people starting a new job search, either as their first ever, or
+ as a re-start to find work after having NOT tried for some amount of time

Anyone who was looking last month and has continued to look, is NOT included in this value.

Unemployment Rate
ONLY measures those actively seeking employment and participating in the labor market; so this rate will DECREASE if
A - the number of people gaining employment is greater than the number of people entering (and re-entering) the work force; all else being equal
B - the number of people LEAVING the workforce (giving up the search) is greater than the number of people entering (and re-entering) the work force; all else being equal

The quote (I haven't read the article) says, "144,000 jobs last month", not PER MONTH.

So as I read this, 144,000 new jobs were offered for the first time that month,...

AND, about the SAME number of NEW people began a "New Job Search" that month,...

AND, the TOTAL size of the work force DECLINED that month,...

...meaning that more people gave up the search, than new people joined it. So yes, this is perfectly plausible.

The net change in the work force, was negative, more left than joined.

NO ONE would have to gain or lose a job for this to cause a "tiny reduction" in unemployment; most likely though it's some of both, fewer people looking for new jobs, and a few more people found new jobs than those who ended their employment.

I don't know about the NYT, or this article, but the quoted paragraph is not in error.

just fyi,
J

Posted by: James Smith at September 7, 2004 05:17 PM