What job loss?, Don't you know there's an entrepreneurial boom!
It's interesting to watch the birth of a new political spin. Bush's main weakness on the economy is being in close company with Herbert Hoover when it comes to job loss. However, when the Bush people see a number that they can't deny, they simply use a different number.
So instead of presiding over the loss of nearly 3 million jobs, we are beginning to be told that there is actually an entrepreneurial boom that the traditional employment numbers aren't capturing. Don't be surprised if in a few months this new party line isn't aped by various Cabinet secretaries in some encore bus tour.
Here's how the story was spun by Brian Wesbury of the firm Griffin, Kubik, Stephens and Thompson writing on the op ed page of the Wall Street Journal on September 15th:
There are many other unnecessary burdens on U.S. companies -- high tax rates, product liability and litigation costs, wasteful regulation, sky-high workers' compensation and unemployment insurance, Social Security and Medicare taxes, tax preparation costs, and Sarbanes-Oxley compliance. In addition, energy prices have remained stubbornly high as Congress dithers over an energy bill. It's the death of a thousand cuts, not a Chinese conspiracy.
These costs have forced the owner of one very small Midwest painting company to completely revamp his business structure. He converted all his employees into partners (owners) because workers' comp and unemployment costs had completely undermined his profitability. Eliminating these costs allowed the company to survive. These creative solutions are allowing small businesses to succeed despite extraordinary obstacles. In fact, they are creating jobs while large businesses are eliminating them. We know this because there is a big divergence between the two surveys of employment run by the Bureau of Labor Statistics. According to the Establishment Survey, non- farm payroll jobs fell by 93,000 in August, creating a total job loss of 437,000 for the first eight months of 2003. The BLS collects this data from approximately 160,000 existing businesses and government agencies each month.
The BLS also collects data directly from households each month -- by either visiting or calling roughly 60,000 households and asking about employment. This data is used to calculate the unemployment rate, which fell to 6.1% in August from 6.2% in July. Interestingly, the Household Survey shows that 1.186 million new jobs have been created this year. This discrepancy of more than 1.6 million jobs can be explained by the fact that sole proprietorships and other small companies are starting up at a faster rate today than they did even in the go-go '90s. They don't show up on the Establishment Surveys' radar because they're too small and too new. However, the Household Survey catches these jobs by asking workers directly.
There are well known differences between the two surveys and yes part of the difference in the numbers is due to new business formation that might not be adequately captured by the establishment survey until an adjustment is done. However, Wesbury conveniently disregards all the other factors. The household survey, for example includes farm workers and self-employed which the payroll survey doesn't.
Wesbury is easy to dismiss as overtly political. He has no roots in academia and is a former Chief economist of the Joint Economic Committee chaired by former Senator Connie Mack. He's one of those talking heads you'll see on Kudlow and Cramer going on about the virtues of tax cuts.
It was interesting, however, to see a similar argument put forth by a more credible source in Professor Allan Meltzer of Carnegie Mellon writing, guess where, in the Wall Street Journal op ed page on Friday. His piece is written more objectively but still neglects any differences between the surveys other than the lag in capturing new business formation in the establishment survey.
Here's my take on what's going on, which is equally anecdotal to what these guys are doing. I have a close family relative who worked for one of the booming telecom companies that used highly "innovative" accounting techniques. She was making a great living. When she was laid off she spent a long time looking for work. At some point she toyed with starting her own business and actually spent time trying to get customers. Eventually, nearly a year after being laid off she found work, for much less money and fewer benefits. If she had been contacted during her short-spell of self-employment she would have been counted as having a job in the household survey while her former employer would not have counted her in the establishment survey.
Any honest study of this issue would look at the busines cycle patterns of self-employment and look at the durations of self-employment and the wages associated with these short-spells. My guess is that much of the apparent increase in employment in the household survey around recoveries is due to a transitory rise in self-employment. Until these kinds of issues are addressed more rigorously it is silly to dismiss the obvious decline in employment.
My story says that we have a lot of people who will do what they have to in order to make a buck during a downturn...this could be thought of as a boom in entrpreneurial activity or a boom in desperation during a jobless recovery.
The other argument that these folks conveniently ignore is that the unemployment rate is also produced by the household survey which is another indicator of a lackluster job market...but that would get in the way of the spin.
Lerxst |
