Dr. Mike Walden N. C. Cooperative Extension
January 19, 2014
In November, did 20,037 additional people find employment in North Carolina, or did jobs at non-farm business fall by 6,500? Actually, both were correct, and this simple example illustrates the problems in measuring the health of the state’s labor market.
Each month, the federal government issues two jobs reports for the nation and for individual states. Neither is an exact count, but both are based on statistically extrapolating the totals from a sample.
The two reports are the household employment survey and the establishment job survey. The household survey involves contacting a sample of households and gathering information about their work status. Unemployment rates are derived from this survey.
The establishment survey gathers information about jobs from existing non-farm businesses. Data about hours worked, wages and the types of companies employing workers are in this survey.
The two surveys are different, give different information and have different advantages and disadvantages. The household survey indicates only if a person is employed. So if an individual has more than one job, he or she is counted as only one employed person. By contrast, the establishment survey would recognize the multiple jobs held by this person.
The establishment survey counts jobs where the jobs are located, even if the holder of the job lives outside the state. The household survey does the opposite – attaching employment only to households living in North Carolina.
The household survey is better at capturing employment of individuals in newly
created businesses, self-employed individuals and employees on farms. The establishment survey is run from a list of existing businesses.
A major difference between the two surveys is their sample size. The household survey uses only 60,000 households nationwide, which is 0.05 percent of all households. The establishment survey uses a sample of 400,000 non-farm businesses covering a third of all workers. In statistical terms, this gives more confidence to the establishment survey numbers.
Hence, the two job surveys are very different in their construction and measurement. Does this mean they will automatically give different results? The answer is that over long periods of time, the two surveys produce very similar results, but over short periods they can diverge significantly.
In November (latest data available), the household survey showed 4,314,502 persons employed in North Carolina, while the establishment survey listed 4,084,100 jobs (both numbers are seasonally-adjusted). This is a difference of near 5.5 percent between the two.
Perhaps more important, both surveys show a recovery in the state’s labor market since it hit bottom during the recession. Employment in the household survey is up 5.8 percent from its bottom in late 2009, and total non-farm jobs in the establishment survey have increased 6.4 percent since the low point in early 2010.
But comparing the two surveys over a shorter period of time shows much less conformity. Looking at the change in the numbers for the first 11 months of 2013, the household survey indicates a 5,699-person loss in employment in the state, but the establishment survey gives a 51,800-person gain in non-farm jobs. This is obviously a big gap.
Perhaps even more telling, in five of the past 11 months, the two surveys were not consistent in showing employment and jobs moving in the same direction. That is, in almost half of the months, one survey showed employment or jobs rising, while the other survey suggested employment or jobs declining.
One other related issue is the measurement of unemployment. The most frequently quoted rate is criticized because it excludes as unemployed those individuals who want a job, but have simply stopped looking (so-called discouraged workers). What is generally not recognized is that the government does publish an alternative jobless rate including such individuals as unemployed, as well as an even broader rate adding as unemployed those workers who have taken part-time jobs only because they can’t find full-time work.
In the third quarter of 2013, these three rates for North Carolina were 8.6 percent (most often referenced), 9.9 percent (includes discourage workers) and 14.9 percent (includes those who took part-time employment). However, each of these was down about 2 percentage points from the highs of three years earlier.
I have three recommendations for people and policymakers tracking the job market. First, recognize there are two separate labor market surveys measuring different aspects of the market and giving different information. Don’t mix them. Secondly, the two surveys are most consistent over multiple years. Third, be wary of reading too much into any short-term – such as monthly – result. Maybe sometimes we expect too much from statistics, but you decide!
Dr. Mike Walden is a William Neal Reynolds Distinguished Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of North Carolina State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy.