Just What IS the Unemployment Rate Anyway?

Pseudo-Random Thoughts points to an NRO article by Bruce Bartlett on how the two measures of unemployment are diverging. These two measures are the household survey, which asks people if they are working, and the payroll survey, which asks businesses how many people they employ. No one knows exactly why these two indices are diverging, with 8.5 million more people saying they have a job than businesses say they pay. Bartlett does make some suppositions:

Economists generally consider [the payroll survey] to be a more accurate measure of month-to-month changes in national employment. However, there is evidence that during cyclical upturns, such as we are in now, the payroll survey misses many new business startups, causing it to understate employment growth. Eventually, the Labor Department finds these businesses and adjusts its data upward...
[snip]
There are a number of technical reasons why the two surveys will always report different figures. Among these are that people with more than one job may be counted twice in the payroll survey, and that the self-employed are counted only by the household survey.

More interesting to me than that the measures differ is that they are diverging more and more. I suspect that I am a factor in this divergence. There are some people who will never be counted by the payroll survey: the self-employed or those working on a 1099 basis. This segment of the workforce is growing.

Posted by Jeff at January 7, 2004 03:41 PM | Link Cosmos