Saturday, December 4, 2010

BLS to Monkey with Birth/Death Index

Is the Bureau of Labir Statistics up to no good? Probably.

One notorious "adjustment" factor the BLS uses in its calculation of monthly unemployment is the birth/death index, in which the BLS "estimates" the number of jobs created at small firms that were just "born", and how many jobs were lost beacuse of the "death" of firms.

NyPo'sJohn Crudele has been a long-term critic of the index. Here's what he wrote in 2004:
The government assumes that newborn or dying companies are missed by its surveys.

This adjustment has proven to be the best indicator of monthly job growth so far this year. In fact, it looks suspiciously like these guesses may account for almost all the growth achieved in some months.. And when job growth was weak...the government was either adding few jobs for new company formations or deducting jobs because it believed more firms were dying than being created.
Given the suspicions around this adjustment factor, it is somewhat interesting that the BLS is adjusting the adjustment factor, itself. They write:

Effective with the release of January 2011 data on February 4, 2011, the establishment survey will begin estimating net business birth/death adjustment factors on a quarterly basis, replacing the current practice of estimating the factors annually. This will allow the establishment survey to incorporate information from the Quarterly Census of Employment and Wages into the birth/death adjustment factors as soon as it becomes available and thereby improve the factors.
Clearly, by making estimates on a quarterly basis versus an annual basis, the BLS will have 4 times as many opportunities to monkey with the adjustment factor.

1 comment:

  1. This is probably in response to their massive model failure for the Apr 2008 to Mar 2009 period, which required an 824k downward revision for the period, which was conducted in Feb 2010.