BLS B.S.: 93% Of New Jobs Since 2008 Were Birth/Death Model Estimates

A research report from Morningside Hill Capital sourced from Zerohedge shows that 93% of the jobs “created” since 2008 were Birth/Death model estimates.  While some portion of those jobs were no doubt legitimately created, the issue is over-estimation of jobs created by new businesses net of jobs lost from failed businesses.  As it turns out, most of the job growth that has been reported by the Government since 2008 – and which in turn fueled some massive stock rallies – never existed.

Ronald Reagan’s administration was the “culprit” behind the creation of the Birth/Death model because apparently Reagan was complaining that the BLS was undercounting the jobs he “created” (from the link above, pg 11).

The source of estimation error derived from the methodology used by the Census Bureau is highly flawed because it extrapolates B/D growth estimates based on historical experience.  When the economic activity in the current period is below the historical rate of economic activity (real economic activity, not inflation-generated growth or growth fashioned from data manipulation), the slow-down in new business formation that occurs in reality is not picked up by the B/D model.

BLS Admits High Error Potential – If you bother to sift through the section of the BLS website that describes the Birth/Death model methodology – something which Wall Street analysts and financial news reporters have never bothered to do – the BLS admits the high potential for error.  From the BLS website:

The primary limitation stems from the fact that the model is, of necessity, based on historical data. If there is a substantial departure from historical patterns of employment changes in net business births and deaths, as occurred from 2008 into 2009 during the 2009 benchmark, the model’s contribution to error reduction can erode. As with any model that is based on historical data, turning points that do not resemble historical patterns are difficult to incorporate in real time. Because there is no current monthly information available on business births, and because only incomplete sample data is available on business deaths, estimation of this component will always be potentially more problematic than estimation of change from continuing businesses.

Perhaps the biggest source of error comes from the Census Bureau’s estimate of jobs from workers not covered by UI tax reports (employers required to pay out unemployment insurance). These are part-time workers (primarily independent contractors). As the BLS admits:

There are some types of employees that are exempt from UI tax law, but are still within scope for the CES estimates. Examples of the types of employees that are exempt are students paid by their school as part of a work study program; interns of hospitals paid by the hospital for which they work; employees paid by State and local government and elected officials; independent or contract insurance agents; employees of non-profits and religious organizations (this is the largest group of employees not covered); and railroad employees covered under a different system of UI administered by the Railroad Retirement Board (RRB). This employment needs to be accounted for in order to set the benchmark level for CES employment.

Over time some sources from which CES draws input data have become unreliable.

Thus, even the BLS admits that the B/D model is B.S. Furthermore, in all probability, the “Death” component of the B/D model likely has outweighed the “Birth” component of the B/D guesstimates, as new business formation is at a 40-yr low based on two studies, one from the Census Bureau and one from Gallup.  Per Gallup, the rate of firms closing began to exceed the number of new businesses in 2008.  Thus, by the BLS’ and Census Bureau’s own admission, the B/D model has grossly over-stated the number of net jobs created since 2008.  In fact, in all probability, the number of jobs from business “births” and “deaths” has declined.

It is likely that the U.S. economy has lost jobs since 2008.  This would explain why the Labor Force Participation Rate has declined to a level not experienced since the late 1970’s when household’s were primarily composed of one income providers.   The concept that the number of jobs since 2008 has, in reality, declined is reinforced by the fact that 94.98 million of the 254.77 million civilian non-institutional population – over 37% of the 15-yr old to 64-yr old population – is no longer considered to be part of the Labor Force.

5 thoughts on “BLS B.S.: 93% Of New Jobs Since 2008 Were Birth/Death Model Estimates

  1. Dave,

    Unfortunately your statement, “the fact that 94.98 million of the 254.77 million working age population – over 37% of the 15-yr old to 64-yr old population – is no longer considered to be part of the Labor Force”, needs correcting.

    There are not 254.77 million people in the working age population which are all those people between the ages of 15 to 64. The working age population in the U.S. – who are 15 to 64-years old – is 205.35 million and not 254.77 million unless you also count the more than 48 million people who are age 65 and older.

    Also there are not 94.98 million in the working age population, ages 15 to 64, who are no longer in the Labor Force as you seem to be saying. More like 57 million. I am assuming that the 94.98 million people that you are talking about are those categorized as being “not in the labor force”. These are all persons age 16 years and older who do not work. Now there are over 48 million people who are 65 years of age or older in the U.S of which about 38 million of them who do not work and are counted in the “not in the labor force” category. So those under the age of 65, in the 16 to 64 age range, who do not work is about 57 million.

    So you should either say “the fact that 94.98 million of the 254.77 million people age 16 years and older – over 37% – are no longer considered to be part of the Labor Force”.

    Or say “the fact that 57 million of the 205.35 million of the working age population – over 28% of the 15-yr old to 64-yr old population – is no longer considered to be part of the Labor Force”.

    And of course we know that many of the people that are in the “not in the labor force” category are because they are retired, they go to school, they are stay-at-home moms or they are permanently or temporarily disabled.

    1. Yep, you’re right. I just lazily took the number the BLS uses to calculated the labor force participation rate. The number they use, which is bullshit, is the “civilian non-institutional population,” which apparently is everyone over the age of 16. It’s worse if you use the working-age population in the denominator.

      1. Dave,

        No matter how you look at the employment situation it is not good and will probably not improve much in the foreseeable future even under Trump. We really can only hope it will not get much worse.

        Also I do want to apologize for some of what I said in my comments on your article, “Wall Street’s Next Ticking Time Bomb: Pensions”. You are correct that most pensions would “blow up” if we had more than a 10% correction in the stock market for an extended period of time. I think the average corporate pension is only 82% funded while the average public pension is even worse. And many of these pensions are invested in some high risk investments that are not very liquid.

        Your site along with Wolf Richter, David McAlvany, and a few others are the only ones I can recommend to someone in which I do not have to warn them ahead of time. No fear-mongering or debatable conspiracy nonsense. I can’t always say that about ZeroHedge or SGTReport though I still go there every day. Thanks.

        1. I would bet corporate pensions are as under-funded as public pensions. I would also bet that all of the pension funds are, true market to market, even more under-funded than is being disclosed. I have a friend who worked on the liquidation and transfer to the PBGC of corporate pension, an auto parts supplier, and he said the non-liquid assets were horrendously over-marked. The fund on a “true-up” basis was about 40% funded. Now the taxpayers get to pay the beneficiaries.

          The employment situation has nothing to do with the occupant of the Oval Office. It was something that was destroyed over a long period of time by the Fed, Wall Street and all of Capitol Hill.

        2. “Your site along with Wolf Richter, David McAlvany, and a few others are the only ones I can recommend to someone in which I do not have to warn them ahead of time. No fear-mongering or debatable conspiracy nonsense. ”

          I still think you have to tell people they may not agree with everthing they read. For one thing these sites can cover things and offer perspective in disagreement with everything they have seen and read before exposure. That can automatically or initially be rejected by the mind

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