The L.A. Times has another one of those Heritage Foundation ads editorials but a Type 2 Economist. It's titled Presto, a Better Jobs Picture, and with a name like that you can tell you need to be suspicious of its contents.

Presto, a Better Jobs Picture
By Timothy Kane
Timothy Kane is a research fellow in macroeconomics in the Center for Data Analysis at the Heritage Foundation.
August 25, 2004

Few people missed the headlines when the latest employment figures were unveiled earlier this month by the U.S. Bureau of Labor Statistics. The addition of only 32,000 new jobs, or 200,000 fewer than expected, alarmed everyone. Stocks swooned, reporters wrote economic obituaries and President Bush's political opponents crowed.

But hardly anyone noticed a new study, published the same day by the same federal agency, that shows payroll job losses have been consistently overestimated since the 2001 recession. How can this be? The problem lies in the way we measure jobs.

The BLS has two ways to do that. One is the payroll survey, which charts the number of jobs that employers report to the government. It shows we've lost 1.24 million jobs since March 2001 (including the 32,000 in July). The second is the household survey, in which the Census Bureau queries Americans directly about their job status. It shows we've added 1.81 million jobs since March 2001, including 629,000 last month.

I thought this nonsense about using the household survey data instead of the payroll survey data was effectively debunked. I know this is a Krugman quote an so won't convince Bushites in and of itself. But maybe they'll note where I got the link from; I found the most commercial guys I could, to show people who are serious about understanding how the economy works have taken note.

Bush grows more debt than jobs
PAUL KRUGMAN
N.Y.Times
March 19

As job growth continues to elude the U.S. economy, we're hearing two main excuses from the Bush administration and its supporters: The real situation is much better than you're hearing, and to the extent employment is lagging, it's the result of factors outside the administration's control. But after three years of extravagant promises and dismal results, the time for excuses has passed.

Let's start with the real job situation. Readers have asked me about what Marc Racicot, who heads the Bush re-election effort, told Don Imus the other day. He claimed that those miserable job numbers are misleading, and that another survey presents both a more accurate and a much happier story. You can find the same claim all over the right-wing media. But it just isn't so.

It's true that there are two employment surveys, which have been diverging lately. The establishment survey, which asks businesses how many workers they employ, says that 2.4 million jobs have vanished in the last three years. The household survey, which asks individuals whether they have jobs, says that employment has actually risen by 450,000. The administration's supporters, understandably, prefer the second number.

But the experts disagree. According to Alan Greenspan: “I wish I could say the household survey were the more accurate. Everything we've looked at suggests that it's the payroll data which are the series which you have to follow.”

Even the less reliable household survey paints a bleak picture of an economy in which jobs have lagged far behind population growth. The portion of adults who said they were employed fell steeply between early 2001 and the summer of 2003. It has stayed stagnant since then.

But wait — hasn't the unemployment rate fallen since last summer? Yes, but that's entirely the result of people dropping out of the labor force. Even if you're out of work, you're not counted as unemployed unless you're actively looking for a job.

We don't know why so many people have stopped looking for jobs, but it probably has something to do with the scarcity of jobs: 40 percent of the unemployed have been out of work more than 15 weeks, a 20-year record. In any case, the administration should feel grateful that so many people have dropped out. As the Economic Policy Institute points out, if they hadn't dropped out, the official unemployment rate would be an eye-popping 7.4 percent, not a politically spinnable 5.6 percent.

Krugman is a Type 1 Economist. Type 2 Economists hate Type 1 Economists because they spread all messy data around. Type 2 Economists are part of the Marketing department.

Now, if Tim was a real economist rather than a propagandist, he would be aware of the majority opinion on the relative value of the respective reports. But Type Two Tim has a job to do

But the new BLS study now acknowledges another reason: job-changing.

When workers change jobs, they wind up being counted twice in the payroll survey — as employees for their former and new employers. When turnover rates are high, as they were in the late 1990s, it looks as if there are many more jobs than there actually are. But when turnover declines, as it has since 9/11, the jobs figure is closer to reality. Thus, some jobs are cited as "lost" when, in fact, employees have merely stayed at the same jobs.

So Type Two Tim feels we were never as well off as we thought we were.

Since we're all anecdotal here, back in the 80s the standard greeting when brothers met, around my way anyway, was "You workin'?" And it was always asked because jobs was scarce and those that existed were touch-and-go. Came the mid-nineties, I wasn't hearing to anymore. I don't run in those circles much anymore (come to think of it, I don't run much anymore) but I've heard it again recently.

In order to spin things positively, Type Two Tim must avoid providing the actual numbers involved. He must also avoid mentioning that with 60,000 respondents as opposed to the payroll survey's 160,000, he's arguing in favor to the statistically less reliable of the two reports.

Critics note that the household survey's employment level varies widely from one month to the next. However, variability isn't caused, as is so often charged, by the small sample size. It's caused by the fresh faces in the sample — 15,000 new respondents per month. Over the long term, the instability disappears, and trend lines are clear. Not only is employment growing by millions, but the labor force is too.

This is interesting. First of all, Brad DeLong had a silightly different take on the reason for the differences in the reports.

Nevertheless, enormous differences between the two surveys remain. Even after adjusting the household survey by "subtract[ing] agriculture, self-employment, private households, unpaid family workers, and those on unpaid leave, and add[ing] multiple job holders... seasonally adjusted," the payroll survey shows a 2.4 million fall in the number of jobs since March 2001, while the [fully adjusted] household survey shows a fall of only 0.2 million. This gap is not due to statistical sampling variability: workers are giving different answers to those conducting the household survey than employers are giving to those conducting the payroll survey: a lot of workers think they work (or say they work) for employers, but the employers don't think the workers work for them.

This makes sense to me because I've seen how people give the answer they should. Their public personas answer the survey or poll questions, not the persona that actually makes the decision on the spot.

There's a graph in that post that suggests it is not the case that the instability disappears over the long term too.

And there's a third reason to suspect that the payroll survey isn't serving us well: Other economic indicators point to recovery. Real wages are rising. Unemployment is low and declining. (Indeed, the same day the 32,000 figure came out, the unemployment rate was reported to have dropped from 5.6% to 5.5%.) Jobless claims have been declining for the last year and are holding at about 340,000 a week. Levels below 400,000 are widely perceived to reflect a healthy, growing workforce.

If the doctor says the patient's temperature is dropped three degrees, that is good news…if the patient has a fever. Which is to say greater context is necessary for those numbers to have meaning, much less to add value to the discussion. Again, quoting Krugman in March:

Yes, but that's entirely the result of people dropping out of the labor force. Even if you're out of work, you're not counted as unemployed unless you're actively looking for a job.

We don't know why so many people have stopped looking for jobs, but it probably has something to do with the scarcity of jobs: 40 percent of the unemployed have been out of work more than 15 weeks, a 20-year record. In any case, the administration should feel grateful that so many people have dropped out. As the Economic Policy Institute points out, if they hadn't dropped out, the official unemployment rate would be an eye-popping 7.4 percent, not a politically spinnable 5.6 percent.

Back to Tim:

But does it really matter how big the hole is in the side of the Titanic? The point is, the payroll survey is now officially suspect. At the very least, it shouldn't be viewed as superior to the other sources of economic data. Analysts have little choice but to reevaluate all their economic assumptions.

Only those analysts that paid no attention to the widely understood limitations of both reports.

But then, Type 2 Economists aren't analysts.