Labor Force Forecast
Issue
Three data sets are needed to forecast the unemployment rate: labor force growth, employment and unemployment. One of these, labor force growth, is used to gauge the effects new employment has on unemployment. Forecasting labor force growth, therefore, is an important part of the process. It benchmarks the number of jobs the economy needs to create to maintain or reduce the current unemployment rate.
Process
Recently the Center for Economic Policy Research (CEPR) demonstrated this calculation. It seems straight forward enough. But these guys are good, so let me take the words out of the article and focus on data explained. The goal is to estimate the number of jobs the economy needs to add to keep pace with the labor force growth. The bogey is 90,000. What data sets do we need to arrive at that number?
Congressional Budget Office (CBO) Key Assumptions in CBO’s Projection of Potential Output
Table 2.2 Potential Labor Force Growth 2010-2014 = 0.7 percent/year
BLS Current Employment Statistics (CES) Payroll Employment January of 2008 total non-farm employment 137,996,000 (138)
142 million *0.7 percent= 994,000/12 equals approximately 83,000 jobs a month.
Conclusion
CEPR also uses data exclusively from the BLS – its growth estimate and employment to population ratio (EPOP) – to derive another estimate. One key calculation in the second estimation is the the number of self-employed workers. CEPR put this at 6 percent. The number is estimated from the Household Survey Table A8. Let’s look at September 2011: Self-employed 8.878 million divided by total employed, 128.565 million, equals 6.9 percent – close to the CEPR estimate. Both calculations suggest the labor force is growing something south of 90,000, but no higher. This is an important calculation because it gives a strong indication of how strong, or weak in this case, our economy employment growth is at the present time. Currently our economy is barely producing jobs at a rate of 0.7 percent (.007) a month, pretty sad performance.
State and Local Government Employment
Issue
The Richmond Federal Reserve recently published an informative article on the recession and government tax shortfalls. The analysis included the affect on government employment. “State and local governments employed nearly 20 million workers in the U.S. That is about 15 percent of total payroll employment in the nation, more than the manufacturing and construction industries combined. As a result of the fiscal duress, state and local governments have been cutting jobs and more are likely to follow.” (PDF)
Economic Impact: Cutting Government Workers
I am not sure anyone would argue that an efficient and productive government is not a good thing for almost everyone. However, arbitrary employment cuts have a significant negative affect on an economy.
As an example, a Targeting Economic Development study using Analytic Hierarchy Process (AHP) showed the impact of government workers. Cox et al. (2000). The study showed that within a three-county region in Virginia, that the State and Local Government, non-education, sector created 32 jobs per million dollars of output. It was the No. 1 industry for this region out of the top 20 studied. The industry also had the 15 lowest average wages of the top 20 but the highest value-added effect (total Virginia/dollars of output) of 1.30. The next-closest industry, oil and gas, was 1.17.
Value-added includes employee compensation, proprietor income (i.e. self employment), other property-type income (i.e. rents and profits), and indirect business tax (i.e. sales tax paid to business). So if government cuts employment, indirect and induced dollars flowing to private sector industries are significantly reduced.
Conclusion
Having an efficient and productive workforce is important for both the government and private sectors. Random cutting, however, will lead to direct negative economic impacts in the private sector at a time when we are all looking for a sign of an improved economy.
It’s Not Easy Being Green
It is important to examine some of the recent work being done in the quantification of Green Jobs. A group called the Workforce Information Council, comprised of leading statisticians/economists from the federal Bureau of Labor Statistics and state labor market information directors, have produced a key report titled “Measurement and Analysis of Employment in the Green Economy (October 2009).” (pdf)
The Study Group defined a green job is one in which the work is essential to products or services that improve energy efficiency, expand the use of renewable energy, or support environmental sustainability. The job involves work in any of these green economic activity categories: Renewable Energy and Alternative Fuels; Energy Efficiency and Conservation; Pollution, Waste, and Greenhouse Gas (GHG) Management, Prevention, and Reduction; Environmental Cleanup and Remediation and Waste Clean-up and Mitigation; Sustainable Agriculture and Natural Resource Conservation; and/or, Education, Regulation, Compliance, Public Awareness, and Training and Energy Trading.
10 Years of Less Employment
Employment
The economy lost another 85,000 jobs in December 2009. It is not uncommon for most of us to focus on the economy month to month, however there are bigger numbers looming on the horizon which are just as important. Recently, Dean Baker calculated employment losses for the decade. He estimates private employment declined by a little over 1.5 million for the decade. In addition to that he states based on the annual benchmark revision, total employment loss is closer to 2.4 million.
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Employment and unemployment calculations are confusing. One reason is the different surveys and assumptions which are used to calculate employment and unemployment. The employment which is referenced above is calculated using what is referred to as the establishment survey. The establishment survey is the Bureau of Labor Statistics Current Employment Statistics (CES) program.
Using historical data from CES, one can calculate the employment losses over the decade. My spreadsheet (pdf) (in 1000’s) demonstrates two ways to calculate this number, one based on last month of 1999 versus the last month of 2009 and an alternative which takes an average over each year, 1999 and 2009, and calculates the difference. Regardless these are large numbers. It is important to note that these are establishment (CES) data rather than the Current Population Survey data. As demonstrated, one is able to make this 1,549,000 jobs loss calculation.
The last portion of this article highlights something called a benchmark revision. Since the CES is a survey the BLS “checks” and makes revisions to the data, by comparing it to a census of employment. This census is the Quarterly Census of Employment and Wages (QCEW). There is actually a good deal of work that goes into this method and the BLS needs to get credit for going though the process.
What is interesting about this year, which Mr. Baker notes, is that we will experience an unusually high adjustment (pdf). Past adjustments have been plus or minus two-tenths. This year the adjustment could be a downward (worse) adjustment of six-tenths or more. Putting these two numbers together one derives the 2.4 million plus/minus job loss over the last decade.
