Redux: Household versus Establishment

While Barry Ritholtz's blog is a big favorite for lots of us, I do not think that David Malpass, Chief Global Eocnomist for Bear Stearns, is going to drop by to comment on the employment numbers.

His work in the current cycle has been brilliant -- right on target throughout, so let me summarize a few points.  The key idea is that he thinks the Household survey is a lot better.  But look first at the background from Barry, including some great charts from the BLS.

Link: Redux: Household versus Establishment.

One last item: The Labor Department's payrolls report is also at odds with its own survey of households, which is used to calculate the unemployment rate. The household survey showed employment grew by 387,000 in June, in line with ADP's figures.The …

The Malpass analysis, in a nutshell, is this.

In the late 90's there were a bunch of deals in stock options and a great pressure to hire for Y2K.  There are always some self-employed, but this period drew a larger than normal fraction into regular jobs.  (I know some software developers who remained as consultants and still got options, but that may not be the norm.)

He believes that the establishment survey over-estimated job expansion during those times and under-estimates it now, as people return to more normal employment patterns.

Malpass says that the househould survey "has been a better measure of employment over the last eight years, when macro-economic volatility has dominated the employment situation and the dollar's value and interest rates swung to extremes.  The unemployment rate fell to 3.8% in April 2000.  That was an accurate measure of the strength of the labor situation, while the establishment survey's job growth was overstated..

Comments

[oldprof]

Thanks for emphasizing this, Barry. I'm sure that Malpass (like us) is familiar with the BLS analysis. You are correct to emphasize that the reports have different purposes, subjects, and methodology.

Personally, I think Malpass has an interesting point about the unusual nature of the last eight years, starting with the Y2K situation drawing consultants into businesses.

[Barry Ritholtz]

And, this is not even my original thesis -- it came from a BLS study, a Federal Reserve study, and Alan Greenspan's Congressional testimony.

The two charts are pretty conclusive -- when they are adjsted so they measure they same things, the differences disappear.