Academic journal article Economic Commentary (Cleveland)

Measuring Total Employment: Are a Few Million Workers Important?

Academic journal article Economic Commentary (Cleveland)

Measuring Total Employment: Are a Few Million Workers Important?

Article excerpt

How can we measure total employment in the economy? The Bureau of Labor Statistics provides two different-and sometimes contradictorymeasures of this key indicator. During the 1990s, the gap between the two measures has widened to more than five million workers. This Economic Commentary examines the current discrepancy between the two measures of employment and explores its significance in interpreting our economy's health.

Each month employment reports are eagerly awaited by economic analysts and small and large investors alike. The Employment Situation Report provided by the Bureau of Labor Statistics (BLS) reports both the unemployment rate and the total number of jobs in the economy; both statistics indicate the overall health of the economy.

The significance of the numbers released in the Employment Situation Report is evident by the immediate reaction generated in the media by its release. Here is an example of a news report reacting to an Employment Situation Report release in which the unemployment rate fell and jobs grew at a strong rate.

"Stocks rebounded today after a steep decline on Thursday as a strong employment report provided fresh evidence of the nation's economic resiliency."

- Chicago Sun-Times,

December 4, l998

Interpreting and reacting to the releases is not always clear cut. For example, consider the following news bulletin that appeared after the release of the June 1999 Employment Situation Report.

"The economy is still roaring ahead, creating more than a quarter-million new jobs in June everywhere from amusement parks to banks. Though the overall unemployment rate crept up to 4.3 percent, all industries except manufacturing and mining posted solid gains."

- Cincinnati Post,

June 5, 1999

At first glance, this report seems to contradict itself: It appears that more people who want to work were unable to find jobs, but the number of people on payrolls in the economy actually rose. Has there been some mistake?

No-seemingly contradictory differences are possible. For example, both employment and the unemployment rate can fall at the same time. One source of the discrepancies is that the BLS publishes two distinct measures of employment.1

To compute the unemployment rate, the BLS surveys households to determine how many people are working and how many are looking for work, but unable to find jobs. Then, to calculate the total number of jobs in the economy, the BLS surveys establishments to determine how many workers are on their payrolls.

Employment as reported by establishments and employment as reported by households are slightly different measures by design, but the two measures typically move together. Over the last few years, however, these two series have shown considerable differences (see figure 1). In 1998, employment as measured by establishments rose 2,923,000, but increased only 1,888,000 as measured by households. Although particularly large differences became obvious in 1998, the phenomenon has been substantial since 1993. During the 1990s, the difference between the two employment series has accumulated to 5,869,000 workers.

This Economic Commentary examines the current discrepancy between the two measures of employment, discusses the reasons for its existence, and explores its significance in interpreting the health of the economy. Certainly, a discrepancy of more than five million workers is important to our interpretation the economy's health. Unfortunately, though, there is no easy way to determine which measure is more accurate; therefore, we must consider the implications of each measure individually.

Differences in Survey Design

Current Employment Statistics

(Establishment) Survey

The two employment measures reported by the BLS are computed from different surveys, resulting in some inevitable differences due to survey design. …

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