How Many Jobs Do We Need- Teaching Arithmetic To Economists - Beat the Press.pdf

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One of the numbers that frequently in appears in discussions on the state of theeconomy is the number of jobs that we need to keep pace with the growth of the

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Home Publications Blogs Beat the Press How Many Jobs Do We Need: TeachingArithmetic To Economists

How Many Jobs Do We Need: Teaching Ar ithmetic ToEconomists

Sunday, 09 October 2011 08:10

I hate to harp on a seemingly small point, but it does offend me

that professional economists and people who write on economics have such an aversion to

simple arithmetic. One of the numbers that frequently in appears in discussions on the

state of the economy is the number of jobs that we need to keep pace with the growth of

the labor force. I have consistently been using 90,000 a month, however I see

considerably higher numbers routinely thrown out, sometimes as high as 150,000 a

month. For example, this Post article on the September jobs numbers told readers that

the economy has to create 125,000 jobs a month to keep pace with the growth of the

labor force.

There are two different ways to get to my 90,000 a month number. The first is to take the

Congressional Budget Office's (CBO) estimates of the potential growth of the labor force.

Its latest reports put this at 0.7 percent annually. Payroll employment peaked at just under

138 million before the downturn. Assuming normal growth, we would be at 142,000 million

today Seven tenths of a percent of 142 million translates in 994,000 jobs a year, or

roughly 83,000 jobs a month.

Of course CBO is not God, they could be wrong. But on the other hand, since their

projections on the deficit are treated with such enormous reverence in the same news

outlets, it would be absurd to just dismiss the economic projections that provide the basis

for the budget projections. In other words, if we take CBO's budget projections seriously,

then we must take their economic projections seriously. The latter are the basis for the

former.

The other way we can get to the 90,000 a month number is by taking the Bureau of LaborStatistics (BLS) estimates of the growth in the non-institutionalized population and multiply

by the employment to population ratio (EPOP). According to the BLS, the

non-institutionalized population grew by 1,750,000 last year. If we apply assume a

pre-recession EPOP of 63 percent, this implies an increase in employment over the last

year of 1,103,000. If we assume that 6 percent of these workers will be self-employed

(the average for the current workforce), this implies that we would have needed

1,036,000 payroll jobs to keep pace with the growth of the labor force over the last year,

or 86,000 jobs a month.

This is how I get my 90,000 jobs a month, I don't know where others get their higher

numbers. Again, this is not an especially important point in the context of an economy that

is missing 10 million jobs, but the lack of respect for arithmetic is. It was a lack of respect

for arithmetic that caused almost all economists and economics reporters to miss the

housing bubble and the stock bubble before it. If we can't prod the people at the top of

the profession to do the simple arithmetic that underlies the claims they make about the

economy then we are in serious trouble.

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Chickens, Eggs and the Labor Force: Which Comes Firstwritten by izzatzo, October 09, 2011 11:39

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About Beat the Press

Dean Baker is co-directorof the Center forEconomic and Po licyResearch in Washington,D.C. He is the author of several books, his latestbeing The End of Loser Liberalism: Making

Markets Progressive .Read more about Dean.

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labor force.

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Any economist knows demand creates supply. Supply does not create demand.

The labor force doesn't just arrive on the scene and demand the number of jobsnecessary to keep it fully employed. If that was the case large families would get moreincome than small ones, spurring a perverse incentive to increase the labor force evenmore until it implodes from massive unemployment.

Arithmetic indeed. For it to add up reverse the question and ask how much labor isnecessary to satisfy the existing level of demand.

Don't count job entitlement chickens before they hatch which only creates anunnecessary labor surplus falsely labled as 'unemployment' via those willing to work butcan't find it.

Let chicken demand come first and egg supply will follow to maintain an organicallybalanced equilibrium free of surpluses and shortages.

Stupid liberals.

http://ecologicalheadstand.blogspot.comwritten by Sandwichman, October 09, 2011 12:35I'm afraid economists got their 150,000 number from the same place they get most of the rest of their ideas: from groupthink.

And graphs, for the people whose silly leaders follow themwritten by Rachel, October 09, 2011 12:55Part of the problem with the housing bubble was the economists who knew that it waslikely to burst one day, but (unlike Dean) didn't take the trouble to say so very often.Too busy talking about whatever more emotive issues were occupying their followers atthe time. And their followers, without adequate data about where things were going(which could have been partially remedied by a little education and a few dozen biggraphs) were easily distracted by emotive issues.

And now many people are putting all the blame for our troubles on Wall Street, whichadmittedly deserves a great deal of blame. And so they neglect the role of the healthcare system in damaging the economy. And all the while the various interest groups arepressuring Congress to produce new health plans, all likely to inflict needless pain on our

fellow citizens. And the citizens, without the necessary knowledge (or even basicgraphs), certainly short of adequate leadership, can do nothing.

125,000 jobswritten by Robert Oak, October 09, 2011 3:53I think they are "doing math", just not your math. If one takes civilian non-institutionalpopulation growth from Jan 2010 to Dec. 2010, one gets 2,057 million increase. Divideby 12 is 171.42k pe r month. Take Dec 2007 civilian non- institutional populationt toemployment ratio, 62.7%, one gets 107.47 jobs. Take the monthly reported increase innon-institional civilian population for September 2011, you get 200k. Take that times62.7%, you get 125.4k jobs needed to keep up with population growth.

I have no idea why you harp on this each month. It's completely dependent upon civiliannon-institional population estimates, which frankly vary way too widely for my tastes.

The fact is the BLS does an annual adjustment, but only between Dec-Jan, instead of averaged out going back for that year. This mon-mon adjustment that's really for theyear throws of f the base non- institional civilian population number, depending which startand end data point (date) one uses. We have not even gotten to age categories, such asthe massive influx of immigrants below age 30, or people working longer or babyboombers.

I personally never give an absolute number on the number of jobs needd each monthand then declare "this is the number". I show a few calculations and give ranges,estimates.

Really, all hell is going to break loose for January 2012, when finally, the 2010 Censusdata is incorporated, now that should create a slew of fictional press reports completewith bad math and where the real fun will start.



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margin of errorwritten by Robert Oak, October 09, 2011 4:13Why not talk about the margin of error? The reality is there is a 100k monthly margin of error on payrolls, CPS is 400k. I did an overview on thathttp://www.economicpopulist.or...ld-survey

Having monthly non-farm payrolls below the margin of error, 4 of the last 5 months, isscary as hell to me.Sorry on previous comment,no spell check in IE forms, non-institutional.

...written by urban legend, October 09, 2011 10:49It's simply o ld data that w as roughly correct before 2010. Since then, that populationgrowth rate has dropped precipitously, as has the employment-to-population ratio. 85 or90K is the better estimate now, and 135-150K is outdated info suitable for lazyreporters.

BLS on Population growthwritten by Dean, October 10, 2011 12:20Robert,I was looking at the estimate of population growth over the last year, but if we want to

just take a shorter period we can look at 3-month interval I was using as the basis for

comparison. (I would argue that annual projections are somewhat more accurate thanthe projection for any specific month, but we could ignore than for now.)BLS projected that the non- institutionalized population grew by 582,000 between Juneand September or 194,000 a month. Assuming an EPOP of 63 percent, we should expectto see employment growth of 122,000 a month. Roughly 6.0 percent of these would beself-employed, leaving payroll growth of just under 115,000 a month.

Of course there are confidence intervals around these numbers, but there are alsoconfidence intervals around the budget numbers. The latter are huge and never everreported, why would we make a big point of reporting anything other than the centralestimate with the labor market data?

...written by urban legend, October 10, 2011 1:06

Why assume EPOP of 63%?mptame Keeping up with non-institutional 16+ populationgrowth at any given time merely means applying the EPOP at that time. Right now, it's just a little over 58%.

wish the Non-institutional Pop was more accuratewritten by Robert Oak, October 10, 2011 2:47Dean: I think the monthly report which separates out those reading the BLS report andnumbers versus reporters aping some number they got somewhere is the Februaryrelease, with the January data. Since that's where the yearly population adjustmentsare. Your overall premise, that many reporters do not read the actual government reportshas to be true from so many "headline buzz" articles that miss completely what the dataactually implies. Not just on the unemployment report, but manufacturing, trade, CPI,you name it.

What bothers me about the BLS is that yearly adjustment done on just December-January boundary, it makes no sense to me and why they don't go back over themonthlies and modify each month.

Then, using the 2000 Census base for 11 years has to be putting in some bias,regardless of statistical algos for y early adjustments.

I think the Census/BLS should track immigration status too. What's wrong w ith justhaving some data in this globalization/labor arbitrage age? We have illegals, alphabetsoup of NIVs (temporary foreign guest worker Visas) that are included in theemployment statistics and it biases the numbers, esp. when looking at occupations.STEM, for example, is notorious, where NIVs are used to labor arbitrage, offshoreoutsource.Urban Legend:



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My point really is if one just looks at the monthly and takes an EPOP of 62.7%, that'sthe ratio for 2007 unemployment rates. If you take the current one, 58.2%, consideringthe "not in the labor force" has so dramatically increased, you hide the # of needed jobsby throwing people who just arrived, increased overall pop., into "not in the labor force".

Also, considering the unemployment rate is based on the monthly Non-institutionalpopulation as shown in the report, is it more accurate to go with just the monthlyincrease and estimate "jobs needed" or the yearly? I get your use of yearly, esp. withthat large end of year adjustment, plus the 2000 Census base being used, on the otherhand, the report is deriviing ratios and unemployment rates and so on from the monthlynumber, exclusively.

To sum: Sure I want a better press corp., although it would kill my hobby here, but whatI really want is more precise, detailed and accurate labor statistics and part of the reasonwe can't get it, is Congress, funding, politics.

lifeaholic of america political historianwritten by clarence swinney, October 11, 2011 2:521921-2003 Democratic presidents created 1,800,000 jobs per year to Republican800,000.Carter + Clinton created 222,000 per month to 99,000 per month by Reagan + Bush I +Bush II

Wealth creates jobs? Ha!Try Bush 8.

clear explanation of assumptionswritten by scott moore, October 11, 2011 6:07Nice job on explaining your labor force assumptions. As to the BLS and why they do whatthey do- they are beholden to statistics. Here is a link to how they actually calculateunemployment, including labor force. It is a project, and they do it every month.http://connectmooredata.com/20...us-method/

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How Many Jobs Do We Need- Teaching Arithmetic To Economists - Beat the Press.pdf