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| How to fix the jobs report: stop responding to it like Pavlov’s dog | How to fix the jobs report: stop responding to it like Pavlov’s dog |
| (about 2 months later) | |
| In this new post-Brexit universe, what happens to your investment nest egg is going to depend a lot on all kinds of economic data points – like the monthly jobs data report from the US labor department due to be released on Friday. | In this new post-Brexit universe, what happens to your investment nest egg is going to depend a lot on all kinds of economic data points – like the monthly jobs data report from the US labor department due to be released on Friday. |
| That figure – the number of new jobs created in the preceding month – has always been a critical one for traders, especially in times when the economy’s fate is uncertain (like 2007 and 2008) or when we’re all on edge, waiting to see what Federal Reserve policymakers are about to do. It also has been a handy gauge of whether it’s time to batten down the hatches or whether it might be OK to splurge on a beach holiday over the winter: if more people are finding jobs, then even if you lose yours, the job market might be robust enough that drawing on your savings might not be too reckless. | That figure – the number of new jobs created in the preceding month – has always been a critical one for traders, especially in times when the economy’s fate is uncertain (like 2007 and 2008) or when we’re all on edge, waiting to see what Federal Reserve policymakers are about to do. It also has been a handy gauge of whether it’s time to batten down the hatches or whether it might be OK to splurge on a beach holiday over the winter: if more people are finding jobs, then even if you lose yours, the job market might be robust enough that drawing on your savings might not be too reckless. |
| But we’re heading into a presidential election season, with both probable candidates promising that they would create jobs. That election is taking place against an increasingly unstable global economy, with last month’s vote by a majority of British citizens to leave the European Union. | But we’re heading into a presidential election season, with both probable candidates promising that they would create jobs. That election is taking place against an increasingly unstable global economy, with last month’s vote by a majority of British citizens to leave the European Union. |
| Against that backdrop, it seems more crucial than ever to measure how many jobs the US private sector is creating. | Against that backdrop, it seems more crucial than ever to measure how many jobs the US private sector is creating. |
| The problem is that today, more than ever before, we just can’t trust that data. | The problem is that today, more than ever before, we just can’t trust that data. |
| The June employment report will appear hard on the heels of a very disappointing figure released a month ago. In May, employers added only 38,000 jobs, and the labor department’s revisions to previous months’ data meant that average monthly job creation in the prior three months sank to only 116,000. That compares to a monthly average of 219,000 during the previous 12 months. | The June employment report will appear hard on the heels of a very disappointing figure released a month ago. In May, employers added only 38,000 jobs, and the labor department’s revisions to previous months’ data meant that average monthly job creation in the prior three months sank to only 116,000. That compares to a monthly average of 219,000 during the previous 12 months. |
| And yet while hiring fell, so did the unemployment rate – from 5% to 4.7% That’s only part of the paradoxical puzzle that is the DOL’s attempt to draw a picture of the world of work and unemployment in the United States. Throughout the entire economic recovery, as Barack Obama and his economic team have pointed to the (slowly) recovering jobs figures and unemployment rate, Americans have been perplexed, wondering why their personal economic situation stubbornly remains an anomaly. | And yet while hiring fell, so did the unemployment rate – from 5% to 4.7% That’s only part of the paradoxical puzzle that is the DOL’s attempt to draw a picture of the world of work and unemployment in the United States. Throughout the entire economic recovery, as Barack Obama and his economic team have pointed to the (slowly) recovering jobs figures and unemployment rate, Americans have been perplexed, wondering why their personal economic situation stubbornly remains an anomaly. |
| There are the traditional ways in which the way the labor department falls short of the mark. For instance, it simplifies nuanced answers to its survey. Some people might respond to that survey saying that they are employed, but in fact have cobbled together a series of two or three part-time jobs to make ends meet, none of which are secure. Or they may have a job that theoretically is full-time – if only the employer would allocate them enough hours. | There are the traditional ways in which the way the labor department falls short of the mark. For instance, it simplifies nuanced answers to its survey. Some people might respond to that survey saying that they are employed, but in fact have cobbled together a series of two or three part-time jobs to make ends meet, none of which are secure. Or they may have a job that theoretically is full-time – if only the employer would allocate them enough hours. |
| There are measures that capture some of this. The Bureau of Labor Statistics publishes something called the U-6 rate, which tracks discouraged workers, those who are only “marginally attached”. These people aren’t looking for work because they think there is nothing there for them, are working part-time but not making a living wage, or are underemployed – imagine a laid-off aeronautical engineer whipping up your latte at Starbucks. The U-6 unemployment remains, stubbornly, about twice as high as the traditional U-3 unemployment rate, at 9.7%, compared to 4.7%. | There are measures that capture some of this. The Bureau of Labor Statistics publishes something called the U-6 rate, which tracks discouraged workers, those who are only “marginally attached”. These people aren’t looking for work because they think there is nothing there for them, are working part-time but not making a living wage, or are underemployed – imagine a laid-off aeronautical engineer whipping up your latte at Starbucks. The U-6 unemployment remains, stubbornly, about twice as high as the traditional U-3 unemployment rate, at 9.7%, compared to 4.7%. |
| As the recovery got under way, however, it was complicated still further by the nearly simultaneous birth of a new phenomenon: the gig economy. | As the recovery got under way, however, it was complicated still further by the nearly simultaneous birth of a new phenomenon: the gig economy. |
| There’s a furious debate under way over just how many Americans are earning the majority of their income by driving for Uber, selling products on Etsy or some other kind of self-employment. Unquestionably, however, contract employees of all kinds have become far thicker on the ground in recent years. | There’s a furious debate under way over just how many Americans are earning the majority of their income by driving for Uber, selling products on Etsy or some other kind of self-employment. Unquestionably, however, contract employees of all kinds have become far thicker on the ground in recent years. |
| The Wall Street Journal reported last summer that it’s hard to find proof in government data that Americans are more reliant on self-employment. But Harvard economist Lawrence Katz and his fellow researcher, Alan Krueger, of Princeton, have concluded that all net job growth since 2005 has come in the form of alternative work arrangements – contract or gig type hirings that aren’t traditional jobs with salaries and benefits. | The Wall Street Journal reported last summer that it’s hard to find proof in government data that Americans are more reliant on self-employment. But Harvard economist Lawrence Katz and his fellow researcher, Alan Krueger, of Princeton, have concluded that all net job growth since 2005 has come in the form of alternative work arrangements – contract or gig type hirings that aren’t traditional jobs with salaries and benefits. |
| More and more individuals are receiving 1099 forms documenting self-employment earnings, and a growing number file Schedule C tax forms spelling out how much they made from their personal businesses, whether renting out their spare rooms or designing greeting cards. They may also have a traditional “job,” or have a part-time job on the side, or generate income through a mish-mash of traditional or gig jobs. Zen Payroll has found that in some cities – Los Angeles and Austin among them – the “1099 economy” now makes up 20% or more of the local workforce; the percentage of workers who fall into this category has almost doubled in Seattle. | More and more individuals are receiving 1099 forms documenting self-employment earnings, and a growing number file Schedule C tax forms spelling out how much they made from their personal businesses, whether renting out their spare rooms or designing greeting cards. They may also have a traditional “job,” or have a part-time job on the side, or generate income through a mish-mash of traditional or gig jobs. Zen Payroll has found that in some cities – Los Angeles and Austin among them – the “1099 economy” now makes up 20% or more of the local workforce; the percentage of workers who fall into this category has almost doubled in Seattle. |
| What we can’t – or don’t – measure, we can’t, or don’t, understand. And then, just as a starting point, we have no way to know whether those traditional unemployment numbers that traders are so anxiously awaiting represent anything meaningful. The markets will respond, of course, but so what? If the gap between the reality of what that employment is and what the government statistics measures widens much further, that market reaction will be about as meaningful as celebrating the end of the Iraq war on the day that George W Bush announced in 2003 that “the United States and our allies have prevailed” would have been. | What we can’t – or don’t – measure, we can’t, or don’t, understand. And then, just as a starting point, we have no way to know whether those traditional unemployment numbers that traders are so anxiously awaiting represent anything meaningful. The markets will respond, of course, but so what? If the gap between the reality of what that employment is and what the government statistics measures widens much further, that market reaction will be about as meaningful as celebrating the end of the Iraq war on the day that George W Bush announced in 2003 that “the United States and our allies have prevailed” would have been. |
| The BLS is taking belated baby steps in the right direction. Next May, it will roll out a supplement to its Current Population Survey that will cover all kinds of “contingent” workers and alternative work arrangements. But that still falls short of data that would routinely capture the size and nature of this large and (arguably) fast-growing world. | The BLS is taking belated baby steps in the right direction. Next May, it will roll out a supplement to its Current Population Survey that will cover all kinds of “contingent” workers and alternative work arrangements. But that still falls short of data that would routinely capture the size and nature of this large and (arguably) fast-growing world. |
| What’s at stake are the working terms and conditions of the millions of Americans who are more and more likely to find themselves engaged in some part of the gig economy, as companies realize just how much it is to their financial advantage to operate in this way. Hire an independent contractor, and a company saves on: health care insurance contributions; social security contributions; pay for sick days, parental leave, vacation; contributions to retirement savings plans; Medicare; heck, even the cost of a lunch break. All of those can cost as much as a third of the total cost of employing someone – and the growth of the 1099 economymeans companies get to transfer many of those costs to the employees. | What’s at stake are the working terms and conditions of the millions of Americans who are more and more likely to find themselves engaged in some part of the gig economy, as companies realize just how much it is to their financial advantage to operate in this way. Hire an independent contractor, and a company saves on: health care insurance contributions; social security contributions; pay for sick days, parental leave, vacation; contributions to retirement savings plans; Medicare; heck, even the cost of a lunch break. All of those can cost as much as a third of the total cost of employing someone – and the growth of the 1099 economymeans companies get to transfer many of those costs to the employees. |
| But if you can’t measure how many “employees” turned gig workers/independent contracters/self-employed individuals are shouldering those new financial burdens for themselves now, then it’s tough to advocate for changes to labor laws recognizing the new world of work. | But if you can’t measure how many “employees” turned gig workers/independent contracters/self-employed individuals are shouldering those new financial burdens for themselves now, then it’s tough to advocate for changes to labor laws recognizing the new world of work. |
| It’s time to overhaul the monthly employment data. The first step is to stop responding to it like Pavlov’s dog – that just reinforces the idea that it sends out an economically vital signal. Admittedly, it’s important information, but it’s also flawed and becoming more so. The less we react to it, the more we drive home the message that it’s unhelpful as it stands, and (perhaps) the greater the incentive there is for someone out there to devise something that will address its many flaws. Quickly, please. | It’s time to overhaul the monthly employment data. The first step is to stop responding to it like Pavlov’s dog – that just reinforces the idea that it sends out an economically vital signal. Admittedly, it’s important information, but it’s also flawed and becoming more so. The less we react to it, the more we drive home the message that it’s unhelpful as it stands, and (perhaps) the greater the incentive there is for someone out there to devise something that will address its many flaws. Quickly, please. |