Birth-Death Adjustment Finally Coming Under Scrutiny

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Houston, we have a problem.


And job recoveries are progressively slower too

This is kind of a wonky bit about employment statistics in the US, and how a statistical tool, the birth death adjustment, may not be a reasonable way of looking at employment in the United states, and now New York Times columnist Floyd Norris is taking note of the fact that job losses in 2008 are now understood to be far greater than originally reported at the time:

It now appears that during the first half of 2008, when the recession was getting under way, job losses averaged 146,000 per month. That is nearly three times the average of 49,000 jobs shown in the initial estimates.

How did the government get it so wrong?

(emphasis mine)

The answer is very simple, a statistical correction called the "birth-death adjustment", which is about birth and death of new businesses, rather than the birth and death of people, and it, "factors in jobs assumed to have been created by employers who are too new to have been included in the survey, and subtracts jobs from employers assumed to have failed and therefore not responded to the latest survey".

You see, under George W. Bush and His Evil Minions^™, the birth-death adjustment was massively expanded, just in time to create for the 2004 election. So there are a number of reasons for this:

• It created better job numbers, and hence political advantage for Bush and His Evil Minions^™.
• It was part of the ideology of the "ownership society" that there were millions of people chomping at the bit to become entrepreneurs, which leads to a feeling that the Birth/Death numbers need to be expanded.
• Political advantage.
• A lack of understanding that Americans have become much less entrepreneurial even in comparison to members of other developed economies, because people are unwilling to rely on privately purchased insurance for their healthcare.
• Political Advantage.
• It is bad to present Dear Leader with bad news.
  

As the top graph shows, something is truly whack here.

Unfortunately, I don't see this being fixed in the foreseeable future, becausethere is no advantage for Obama/Geithner/Summers to start using more accurate, and hence scarier, numbers.

H/t Barry Ritholtz.