Article published Tuesday, March 21, 2004, at Detroit News.

Unemployment rate remains fairly low at 5.6%; survey reports firm deaths quicker than births

By John R. Lott Jr.

    It is puzzling. The unemployment rate keeps on falling, but there don’t seem to be any new jobs. The press reports about “America’s struggling job market,” while from last June to February the unemployment rate fell to 5.6 percent from 6.4 percent.

We are said to be in a “jobless recovery.” Supposedly the unemployment rate keeps falling because people have given up looking for jobs. The real answer is quite simple: Numbers are being mixed and matched from different sources with little notion of how they are calculated.

The Department of Labor provides two different sets of labor market statistics: the establishment survey and the household survey. The establishment survey polls 400,000 companies on how many employees they have. The household survey questions 60,000 households each month on whether they have jobs and whether someone is looking for one.

There are a number of technical reasons that the two surveys can yield different numbers. For example, people with more than one job will be counted multiple times in the establishment survey. On the other hand, the self-employed are only counted by the household survey.

The “jobless recovery” picture is painted using the household survey for calculating the unemployment rate but using the establishment survey for the number of jobs created. The household survey can be used for both measures as it, too, provides estimates on the total number of people employed.

But the two surveys have implied dramatically different changes in employment. Over the entire Bush administration, the household survey found that about 1.2 million new jobs have been created. By contrast, the establishment survey shows a net loss of 1.7 million.

Why the difference? The number of companies does not remain fixed. Old firms die and new ones are born. The establishment survey finds out about the company deaths quickly, but it takes longer to learn about births. The current list of firms surveyed excludes firms started over the last two years. What the establishment survey shows is that total employment in older firms has changed little over the last three years. It missed the growth in new jobs among new startups and self-employment.

Not surprisingly, the Democrats choose to emphasize the establishment numbers. But even conservative columnist George Will recently asked: “Do we even have to think whether these jobs are coming back?”

Numbers can be confusing. The establishment survey is much larger and some claim it is more comprehensive. But the household survey is still quite large and it has always been the “official” measure for calculating the unemployment rate. The issue isn’t survey size, but whether the survey is biased — whether it adequately covers all types of employers. The establishment survey ignores new startup businesses and we have had an usually large expansion in this category over the last couple of years.

By only referring to the establishment survey numbers, the media have implicitly taken sides in the debate, albeit perhaps unknowingly. A simple Nexis computer search of the news media from Feb. 1 to March 9 finds 734 stories using the term “jobless recovery” to describe the U.S. economy.

In recent weeks, news stories carried such headlines as “Bush Jobless Recovery Hits Middle Class” (New York Daily News) to “On Job Front, ‘Recovery’ Meaningless” (Atlanta Journal-Constitution) to “Where are the Jobs?” (CNN). Given this rhetoric, it hard to believe that the current 5.6 percent unemployment rate is lower than the average unemployment rates during the 1970s (6.4 percent), 1980s (7.3 percent) or 1990s (5.8 percent).

All is not lost. Eventually the establishment survey numbers will be adjusted for all the new startups that have sprung up during the last couple of years. Unfortunately, much of this won’t be reported until after the 2004 elections when all but a handful of historians and economists will pay attention.

John R. Lott Jr. is a resident scholar at the American Enterprise Institute in Washington, D.C.

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