An Economists View

An Economists View

Reporting Labor Statistics Correctly

Gary Wolfram, Ph.D.
The George Munson Professor
of Political Economy, Hillsdale College

     The coverage of labor market statistics by the media brings to mind the old adage: There are lies, damn lies, and statistics. Any reporter trying to justify his or her position may find some labor market data to support it.

     Now you would expect this from a sophist or politician, but it would be beneficial to our political system if the media clearly reported facts in context and clarified what statistics actually meant. Most readers will be unaware of the subtle differences among various labor market statistics and will be hard pressed to determine their significance.

     Journalists should have an awareness of what is behind a given set of numbers and should explain to their readers or listeners the strengths and weakness of a specific measure.

     For example, suppose a reporter is trying to inform his or her readers what has been happening to employment growth. It is well known that the use of payroll surveys understates employment growth. This is because the payroll numbers will not capture people who are self-employed. If the reporter wishes to give the impression that employment growth has been slow, then he or she could merely quote the payroll survey numbers and state that employment growth has been below trend, or didn't meet expectations, or that it didnt grow fast enough to improve the economy.

     What the reporter should do is explain what the data actually shows: the number of people who are working for someone else. Nothing more. For some stories this is the relevant number. For others, the proper measure to report might be the number of new unemployment claims, or the civilian unemployment rate. The point is the reporter should tell the reader what the statistic is designed to show.

     We may use the current state of employment as our model. Since April 2003, 1.9 million new payroll jobs have been created in the U.S. economy. The number of new jobs using the household survey, which includes the self-employed, has grown by 2.2 million. This differential between the payroll numbers and the household survey will increase over time. With the advent of the Internet, e-mail, simplified web site programming, etc., along with reductions in the highest marginal tax rates, it is much easier to be self-employed than it was 20 or even 10 years ago. This trend will accelerate. Reporting payroll jobs as reflecting the overall strength of the economy is simply misleading.

     Reporters should also inform readers and listeners that it is routine for labor market data to be revised. For example, the Bureau of Labor Statistics reports data, does an annual preliminary revision, and then a final revision. There can be a substantial difference between the first release and the preliminary revision, although the preliminary revisions and final revisions are usually fairly close.

     The citizens are not served when reporters provide data and then attach their own value judgment as to the significance of the data. For example, it has been reported that the unemployment rate is unacceptably high for the current administration to remain in office. Yet, when one compares the current unemployment rate of 5.4 percent to historical levels, it is quite low.

     In fact, this rate is below the average unemployment rate of the decade of the 1970s, 1980s and 1990s. It is also substantially below the peak unemployment rate of this administration, which was 6.3 percent in June of 2003. When put into context, it is pretty clear that unemployment is closer to a historic low than it is to a historic high.

     The media should also include outside factors when reporting employment and other economic data. A good example is the effect of 9/11 on the labor market structure. The terrorist attack not only directly destroyed several thousand jobs, but the uncertainty it created slowed economic growth. In the 100 days following 9/11, one million jobs were lost. When looking at the performance of an administration in relation to job growth, surely this is a relevant addendum.

     Another fault the media should look out for is reporting data in a manner that is designed to convey a false impression. A prime example of this is the reporting that George Bush would be the first President since Herbert Hoover to have fewer people employed during the reelection campaign than at the beginning of his term. Clearly this is designed to imply that the economic situation under Bush is comparable to that of the Great Depression. However, this is so ludicrous that few will take it seriously.

     Putting into context any data on employment one would have to acknowledge that the 9/11 attack was an outside variable, Bush inherited the recession from his predecessor as well as a stock market collapse, and due to uncertainties in supply, oil prices are at historic highs. But leaving this all aside, as Ive already noted, the economy has added millions of jobs and unemployment is at a level below the average of the last three decades. President Roosevelt, who won an unprecedented four terms and defeated President Hoover, presided over an unemployment rate of 19% in 1938, the 6th year into his term. No person who was not trying to use complete sophistry would suggest that the employment situation of 2004 is somehow the worst it has been since President Hoover.

     It is also useful to compare what has happened or is happening to other countries. If the media reported this, we would know that in the past year the U.S. economy has created more jobs than Germany, Japan, Great Britain and France combined.

     Finally, localized job losses will always be found in a dynamic economy. Indeed, that is why market capitalism is such an efficient way of organizing resources. New technology, increased productivity, and response to changing consumer demand all lead efficient firms to alter their use of labor. Thousands of workers who were employed in the typewriter industry lost their jobs with the advent of first, the word processor, and then personal computers. But the only way to save these jobs is for us all to continue using typewriters. It may be a nice human interest story to look at the effects of the closing of a typewriter plant on the local community, but it is hardly indicative of some failure of the overall economy. In fact, it very well could be indicative of the vibrancy and efficiency of the overall economy.

     The media can inform the public or mislead it when reporting on any economic data, but particularly on labor force data. If they explain what the data is designed to show, put it into true historic context, compare it to other countries, and account for outside events, they will more than likely be informative.

Dr. Gary Wolfram is a member of the Board of Advisors for theBusiness & Media Institute.