About That Employment Situation Report

by Dave Schuler on May 5, 2012

You must certainly have heard or read about the Bureau of Labor Statistics’s disappointing Employment Situation Report by now. Disappointing because not only did the number of payroll jobs only increase by 115,000, generally considered below the “natural increase”, but the number of those looking for work declined. That’s the slowest level in seven months and should squelch whatever talk there was of robust recovery.

For the last several years we’ve seen a pattern in these numbers: strong growth during the winter months, sluggish growth in the spring and, frankly, I find that a bit puzzling. Counter-intuitive. I would think it should be the other way around.

I’m open to suggestions for an explanation. My working hypothesis is that it’s an artifact, i.e. that the actual real not-easily-measured number of jobs added is very low, indeed, and that the various fudge factors, e.g. seasonal adjustment, birth/death ratio adjustment, etc., are overwhelming reported figures. As I say, I’m open to suggestions for an explanation.

I’m sure that somebody somewhere is pointing out that increases in private sector employment are being offset by declines in public sector employment. Most of those declines are from the states and the fact of the matter is that the states are choosing to increase the compensation of their employees and, since they are in general required to balance their budgets, cut the number of employees to make up the difference.

Add to that that much of the growth in “private sector employment” is in the healthcare sector and approaching 70% of that is de facto public employment. That states are just choosing healthcare jobs over other sorts of jobs.

The decline in the “participation rate”, the proportion of people who are working, which has been declining since the start of the recession and which is wholly responsible for the misleading decrease in unemployment rate which otherwise would be in the teens has other implications as well as miserable people who have given up looking for work. For one thing it means that FICA revenues are decreasing which will speed up the point at which the SSTF goes TU. That’s the case because the amount of income subject to the tax is capped—high income individuals making more money doesn’t bring more money into the fun.

{ 9 comments… read them below or add one }

steve May 5, 2012 at 10:38 am

“Most of those declines are from the states and the fact of the matter is that the states are choosing to increase the compensation of their employees and, since they are in general required to balance their budgets, cut the number of employees to make up the difference.”

I have not seen data on this. I know our local teachers did not get raises. Our state Universities froze salaries. I dont know about police, but dont remember freezes or cuts for them.

Steve

PD Shaw May 5, 2012 at 11:52 am

I notice the loss of public sector jobs gets brought up a lot too. I’m not sure why. I’ve not read many proposals to do anything about it. Perhaps people don’t realize how little of highway spending goes to a public sector job.

The number of state/local jobs have been declinging* long before the recession. At least some of this loss is delayed productivity gains from computers that the private sector embraced over a decade ago. A lot of it is that public sector jobs are too expensive to maintain as opposed to outsourcing to private firms. Part of that expensive is lack of labor flexibility. It appears that all OECD countries have similar trends since the 80s in reducing numbers of public sector jobs.

I’ve offered my idea — federal help in converting pensions to defined contribution plans. Lamar Alexander has suggested the feds taking over Medicaid in exchange for getting out of education. Dave probably suggests healthcare reform.

*Except education.

PD Shaw May 5, 2012 at 12:05 pm

@Steve, around here freezing teacher salaries means freezing the current annual COLA and existing step increases (a first year teacher has a different base pay than a fifth year teacher). These are usually locked in union contracts for one or more years and thrifty schools have been proudly announcing that new union contract have no new increases, but that merely means the increases locked into the previous contracts remain in place. Salaries are going up and new teachers don’t get hired.

Andy May 5, 2012 at 3:29 pm

I’m sure each situation is different, but from what I understand the way the contracts are structured the first thing that typically gets cut is junior employees. Wages and benefits typically can’t be reduced without some kind of renegotiation and all union workforces (that I’m aware of) use a seniority system that protects senior employees at the expense of junior employees. These incentives, I think, are pretty bad for the raw public employee jobs numbers.

steve May 5, 2012 at 3:51 pm

About half of the US primary and secondary school teachers are in unions. Is it any different in areas without unions?

Steve

Ben Wolf May 5, 2012 at 5:26 pm

@Dave Schuler

I happen to think the conventional wisdom is correct this time and a lot of spending which would have been deferred to the spring got spent over the unusually warm winter. You’ve also got seasonal part-time retail employment increases during the winter which fizzle out almost immediately after January 1st.

I strongly suspect the part-timers who get axed after Christmas are disproportionately represented in the number of people dropping out of the workforce entirely. In their position I’d probably be utterly demoralized as well.

Icepick May 6, 2012 at 12:21 pm

In their position I’d probably be utterly demoralized as well.

Demoralized and heading towards SSDI if they can, and I don’t blame them. Anything beats starvation. Besides, if things don’t get better thay can always have someone turn them in and they can do a few years in prison for fraud. And when they get out there are programs to help ex-cons get jobs, but no one gives a fuck about the LTUE, so it’s a win-win situation!

Dave Schuler May 7, 2012 at 6:43 am

Ben:

Other than the warm winter all of the things you mentioned are supposed to be accounted for by the seasonal adjustments fudge factors that are applied to the number. I think their models need recalibration.

Ben Wolf May 7, 2012 at 3:12 pm

@Dave Schuler

I don’t believe the BLS accurately accounts for seasonal factors since it went to “concurrent” publishing of seasonal factors alongside monthly production estimates. In fact they don’t even publish what those seasonal factors are any more, they basically just say, “Trust us”.

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