Submitted by A Dash of Insight

The attention-getting headline for today’s article is true, but misleading. It parallels the monthly assault on the BLS Birth/Death model from Barry Ritholtz and others. In the most recent article, Barry incorrectly writes that the BLS has substituted modeling for measurement.

In fact, before the BLS adopted the birth/death adjustment they did not “measure” newly created jobs as Barry states. They just treated those not responding to the survey the same as those who did. This was clearly not correct, since actual state employment data proved that there was a sea change underneath the surface, something like 2.5 million jobs lost and created each month.

Briefly put, the “old method” assumed that job losses were offset 1 to 1 by newly created jobs. These new jobs were not measured, and the “model” was an estimation.

Using the Ritholtz headline tactic, these are millions more “hypothetical jobs” than those imputed from the birth/death model.

When the BLS discovered that this old method was not capturing all of the new jobs, they created more sophisticated modeling techniques. The birth/death adjustment has dramatically improved the performance of the job count, as demonstrated by actual state data.

We covered this on many occasions, and in particular last month.

Barry is followed by so many through his blog and media quotations, so he has a special responsibility to get this right. He has criticized this method since its inception, as he himself notes. Here are two simple questions for him:

1. Can he find a single time period since the introduction of the birth death model where it made the estimate less accurate than would have been the case with the old method? We cannot. How can something that makes the job count more accurate be criticized?

2. What is so good about the “old” method of assuming that job creation exactly equaled job losses?

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