Resolving the Payroll-vs.-Household Debate

The smaller survey size -- BLS contacts only one-seventh as many households as businesses -- helps explain why the household survey is so much more volatile, when projected out to the 100 million-plus level. Analysts at the BLS advise not putting too much stock into any one data point. What matters is the overall trend of job creation. Hence the reliance on moving averages by most economists.

Once we get past the quantitative data, consider the qualitative side of surveying: What is the objectivity of the persons providing the data? The payroll survey is derived from 400,000 businesses. It is a summary of corporate payroll data. There is simply no reason, nor any upside, for a corporate human resource person to falsify this information.

It is quite easy to imagine, however, an individual "puffing up" their own situation: It's simply a matter of pride or ego. Perhaps this helps explain why, ever since the technology bubble burst, there has been such a large increase in the numbers of "self-employed, work-at-home contractors" in the household survey. Very often, the phrase "work-at-home contractor" is merely a polite euphemism for being unemployed.

Different Jobs Measured

Second, let's look at what they measure: The two surveys actually quantify different jobs. When the BLS modified the household survey "to make it more 'similar in concept and definition' to the payroll survey," this divergence essentially disappears.

How? The BLS subtracted from the household survey those jobs not represented in the payroll data, specifically all agricultural and related employment, self-employed, unpaid family and private household workers, and workers absent without pay from their jobs.

The use of the broader standard (including farm labor, unpaid family workers and part-time employees) is what created the divergence. This is seen in the green line in either of the charts below. Using data "similar in concept and definition" to the payroll survey, the BLS found, eliminated the phantom missing jobs.

Household and Payroll Survey, Seasonally Adjusted, 1994-2004

The BLS notes: The household series presented here has been smoothed for population control revisions. The "adjusted" household series has been smoothed for population control revisions and adjusted to an employment concept more similar to the payroll survey. Shaded area indicates recession. Source: Bureau of Labor Statistics , March 5, 2004

Household and Payroll Survey, Seasonally Adjusted, March 2001-February 2004

The BLS notes: The household series presented here has been smoothed for population control revisions. The "adjusted" household series has been smoothed for population control revisions and adjusted to an employment concept more similar to the payroll survey. Shaded area indicates recession. Source: Bureau of Labor Statistics , March 5, 2004

Conclusion

One of the inherent challenges of the market is what I like to call the "folly of forecasting."