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Thursday, August 12, 2004

Bad Economics 

Econopundit strikes again. When I read this, I immediately thought "What are you talking about?" His claim that there hasn't been a monthly decline in job growth since April is simply not true. Here's the payrolls data from January 2003 on:

DatePayrolls (Thousands)Change from Preceding Month
Jan-0313019094
Feb-03130031-159
Mar-03129921-110
Apr-03129901-20
May-03129873-28
Jun-03129859-14
Jul-03129814-45
Aug-03129789-25
Sep-0312985667
Oct-0312994488
Nov-0313002783
Dec-031300358
Jan-04130194159
Feb-0413027783
Mar-04130630353
Apr-04130954324
May-04131162208
Jun-0413124078
Jul-0413127232


So clearly there was a decline in payrolls until September 2003. What he's done in his chart is pick the exact way the data seems like it says what he says it says. So instead of showing the absolute change from period to period (what most people look at), he shows the percent change from period to period. Here's what the percent change from period to period looks like:

DatePercent Change from Preceding Month
Jan-030.07%
Feb-03-0.12%
Mar-03-0.08%
Apr-03-0.02%
May-03-0.02%
Jun-03-0.01%
Jul-03-0.03%
Aug-03-0.02%
Sep-030.05%
Oct-030.07%
Nov-030.06%
Dec-030.01%
Jan-040.12%
Feb-040.06%
Mar-040.27%
Apr-040.25%
May-040.16%
Jun-040.06%
Jul-040.02%

Right here, you can see why people don't look at the percentage changes. If gangbusters payroll growth is March 2004, and that's only 0.25% percent growth, what is the point? The payrolls seem to only grow by certain amounts each month over time (around 200 to 300 thousand a month in times of expansion), but since jobs accumulate, a "good" payroll increase is a decreasing percentage change over time. In other words, a 250,000 payroll increase 30 years ago is a larger percentage change than the same increase today, but it's still just as good of an increase in employment. It's kind of surprising, actually. This makes the percent changes uninformative.

But ignore that. It still doesn't look like his claim is correct, does it? So he applies a little more fudge, by rounding the growth rates to one digit. Well, then you get his chart.

DatePercent Change from Preceding MonthPercent Change Rounded to 1 Digit
Jan-030.07%0%
Feb-03-0.12%0%
Mar-03-0.08%0%
Apr-03-0.02%0%
May-03-0.02%0%
Jun-03-0.01%0%
Jul-03-0.03%0%
Aug-03-0.02%0%
Sep-030.05%0.1%
Oct-030.07%0.1%
Nov-030.06%0.1%
Dec-030.01%0%
Jan-040.12%0.1%
Feb-040.06%0.1%
Mar-040.27%0.3%
Apr-040.25%0.2%
May-040.16%0.2%
Jun-040.06%0.1%
Jul-040.02%0%


As you can see, not only does this now make it look like there wasn't actually a decline in jobs in those first five months after April 2003, but it also exaggerates the growth for September through December, by almost doubling the growth rate in those months. He's hidden a decline of over 130,000 jobs and called it "zero" because it's broken up into enough periods that the percent changes were rounded away by the arbitrary precision he chose.

But even still, all this isn't really the point. The working population is growing all the time, and so people enter the labor force. That means that simply having zero jobs growth is actually a decline in employment in percentage terms. In fact, economists estimate that you need about 150,000 new jobs a month just to keep up with population growth. So a smaller monthly increase isn't actually anything that people get excited about. From this perspective, only March, April, and May (and November, barely) are consistent with an increase in real employment.

Comments:
And don't forget the loss of quality. A programmer working for QA and a QA person working for Burger King is the same employment as before, but the value added is dramatically less.
 
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