BLS Job Growth Equals 2500% of Total
Posted on Friday, December 7th, 2007 | In Investing LessonsThe attention-getting headline for today’s article is true, but misleading. It parallels the monthly assault on the BLS Birth/Death model from Barry Ritholtz and others. In the most recent article, Barry incorrectly writes that the BLS has substituted modeling for measurement.
In fact, before the BLS adopted the birth/death adjustment they did not “measure” newly created jobs as Barry states. They just treated those not responding to the survey the same as those who did. This was clearly not correct, since actual state employment data proved that there was a sea change underneath the surface, something like 2.5 million jobs lost and created each month.
Briefly put, the “old method” assumed that job losses were offset 1 to 1 by newly created jobs. These new jobs were not measured, and the “model” was an estimation.
Using the Ritholtz headline tactic, these are millions more “hypothetical jobs” than those imputed from the birth/death model.
When the BLS discovered that this old method was not capturing all of the new jobs, they created more sophisticated modeling techniques. The birth/death adjustment has dramatically improved the performance of the job count, as demonstrated by actual state data.
We covered this on many occasions, and in particular last month.
Barry is followed by so many through his blog and media quotations, so he has a special responsibility to get this right. He has criticized this method since its inception, as he himself notes. Here are two simple questions for him:
Can he find a single time period since the introduction of the birth death model where it made the estimate less accurate than would have been the case with the old method? We cannot. How can something that makes the job count more accurate be criticized?
What is so good about the “old” method of assuming that job creation exactly equaled job losses?
Last 5 posts by Jeffrey Miller
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 About Jeffrey Miller (http://www.oldprof.typepad.com)
Jeffrey A. Miller, Ph.D. is a former college professor with a hands-on, real world attitude. His quantitative modeling helped inform state and local officials in Wisconsin for more than a decade. A Public Policy analyst, he taught advanced research methods at the University of Wisconsin, and analyzed many issues related to state tax policy. In 1987 Jeff began work for market makers at the Chicago Board Options Exchange. His approach included finding anomalies in the standard option pricing models and developing new forecasting techniques. Merging these quantitative techniques with specific company analysis, Jeff also generated trading ideas from sell-side analyst reports. Through his years of experience in trading options, futures and equities, Jeff has come to be regarded as an expert in interpreting the effect of news on the markets and individual stocks. Jeff has served as a forensic expert in several cases involving such issues. He has also written a series of papers on investment management, describing both quantitative methods and those related to behavioral economics. |
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