Michael Barone

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The jobless recovery may not have been jobless

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The news from the Bureau of Labor Statistics last Friday that the nation had a net gain of 308,000 jobs in March–and, thanks to upward revisions of the January and February numbers, a net gain of 513,000 in the first quarter–hasn't stopped John Kerry and the Democrats from claiming that the number of jobs has fallen by two million since George W. Bush became president. Actually, the number they should use after the March figures is 1,840,000. But that's still a lot of jobs to lose. The interesting question, which economists are not confident they can answer, is whether the United States suffered a net loss of jobs in this period or whether, as has usually been the case, it has gained jobs.

You may ask, doesn't the Bureau of Labor Statistics' establishment survey make it clear that there has been job loss? The establishment survey has long been taken by economists of all political stripes to be the best indicator of job gains and losses. And the BLS is a highly competent organization, impervious to political influence.

But the employer survey is not the only measure of jobs. The BLS also conducts a household survey, which shows a net job gain of 612,000 from January 2001 to March 2004.

The contrast is even sharper if you disaggregate the numbers and look at job gains and losses in the recession, officially defined by the National Bureau of Economic Research as occurring from March 2001 to November 2001, and at the postrecession period from November 2001 to March 2004.

This discrepancy between the population and household surveys has persisted since the late 1990s and economists have not been able to explain it. But economist Tim Kane of the conservative Heritage Foundation gives several reasons for doubting that the establishment survey provides the more accurate picture of job gain or loss:

• The population survey is subject to substantial revisions. Unrevised numbers showed net job loss of 900,000 jobs from April 1991 to October 1992, when George H. W. Bush was running for reelection; using the revised April 1991 figure, there was still a job loss of 100,000. But the revised October 1992 number, not available of course until after the November 1992 election, showed a job gain of 500,000 for the period.
• The establishment survey underreports self-employment and employment by new firms. The household survey shows a seasonally adjusted increase of 647,000 in self-employment since November 2001. Moreover, self-employment may be underreported in the household survey because independent contractors may not understand themselves to be self-employed. We do know that self-employment has become more common; we don't know for sure to what extent.
• The establishment survey counts as an employee anyone employed in a given month, even when one is leaving a job and is being replaced by another. This tends to overreport the number of jobs at times, like the prosperous late 1990s and the year 2000, when employees changed jobs more often than they typically do in recessionary times.

Kane concludes that "the best measure of job growth now comes from the smoothed total employment recorded in the household survey." Many economists will still disagree. But most will probably agree when he says, "Policymakers and analysts should treat payroll data with caution when making comparisons to employment levels in 2001 and earlier years."

The BLS and other government statistical agencies do a superb job. But the economy they are attempting to measure changes over time, and changes in the underlying reality tend to make any statistical measure over time less accurate. The establishment and population surveys make it clear that there was significant job loss during the recession of March to November 2001 and particularly after the September 11 attacks. But they are at variance of what has happened since November 2001: a small job loss, says the establishment survey; a much bigger job gain, says the population survey.

Disinterested observers might be wise to assume it was something in between and to keep in mind both surveys when they are trying to understand whether the economy is producing a net gain in jobs. Meanwhile, the BLS has been conducting new surveys to try to understand the reasons for the discrepancy between the two surveys and, perhaps, to come up with new methods that will provide more accurate measures.

All this may be moot politically. The establishment survey has long been considered the more accurate measure, and that verdict has recently been reaffirmed by the Congressional Budget Office and Federal Reserve Chairman Alan Greenspan. The Bush administration and the Bush-Cheney '04 campaign missed any chance they had last year to argue that the household survey was more accurate; it is too late in the political season now to do that convincingly. And if the April and May establishment surveys show job gains anything like the 308,000 in the March survey, the administration and Bush-Cheney '04 will have plenty to crow about, and John Kerry and the Democrats will have to revise their economic talking points. The jobless recovery, it seems, may not have been jobless at all.

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Michael Barone Archives

JWR contributor Michael Barone is a columnist at U.S. News & World Report and the author of, most recently, "The New Americans." He also edits the biennial "Almanac of American Politics". Send your comments to him by clicking here.