An Aside on Employment Numbers

In a recent post, I commented on two articles in the WSJ, one in the news section and one on the Op-Ed page. The employment numbers used in the Op-Ed piece seemed to me not to be credible. After some investigation, I discovered that the Op-Ed piece used the so-called "household survey" which reported significantly greater employment growth than the "payroll (or establishment) survey."

In yesterday's WSJ, Greg Ip focused on the two surveys and their divergent numbers (Divergent Data Raise Questions About Labor Market's Health). In reviewing the article, Dean Baker comments:

I looked at the data more closely and must come down on the side of the establishment survey. The simple arithmetic looks like this. Social Security tax collections were up 5.35 percent in fiscal year 06 compared to fiscal year 05. The average weekly wage rose by 3.9 percent, which implies job growth of 1.4 percent. Reported job growth in the establishment survey matches this closely, at 1.44 percent. However, we know that the Labor Department will add in 810,000 jobs to its March 2006 number in its benchmarked revision (these additional jobs are wedged in over the prior 12 months). When the data is adjusted for these additional jobs, the establishment survey shows job growth of 1.9 percent for the fiscal year, substantially more rapid growth than is implied by the growth in Social Security tax receipts.

There are complicating factors here -- self-employed workers pay SS taxes, but are not counted in the establishment data, many government workers don't pay into SS -- but these are not likely to change the basic story. It is implausible that the establishment survey is understating job growth, and it may well be overstating it.