Tuesday, November 07, 2006

Update on employment estimation 

I got two very insightful comments in this post on last Friday's employment report. Doug Sundseth asks:
The employment figures are revised from their initial estimates every month. Fair enough, initial estimates shouldn't be expected to be precise. Why are all (or nearly all) such revisions in the same direction?
I thought this too, so I went to look up the Handbook of Methods that BLS uses to instruct the statisticians. This is not for the narcoleptic. In short, they are estimating at each industry level based on some sample a value for the industry. It adds on a business birth/death model. The modelers know which businesses die, but not which are born. So they use the former to forecast the latter. Moreover, they assume:
While both the business birth and business death portions of total employment are generally significant, the net contribution is relatively small and stable. To account for this net birth/death portion of total employment, BLS has an estimation procedure with two components. The first component uses business deaths to impute employment for business births. The second component is an ARIMA time-series model designed to estimate the residual net birth/death employment not accounted for by the imputation.
Looking at the adjustment data for 2005 (post-benchmarking in March, so just the last nine months) indicates net business births were estimated to have created 817,000 jobs in those last three quarters of 2005. Hopefully this information also helps Calmo's observation.

To his observation on the size of the real wage change, I was using the information from the CES, average hourly earnings in 1992 dollars, 12 month percent changes. The information shows 2.4% rise in real wages that way.

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