The Bias In Reporting Job Losses

Each day’s news brings more stories about layoffs at major companies. The stories get a big play in mainstream media. The leading bloggers also cite the stories and encourage readers to keep a summation of job losses.

This is quite misleading. Job losses occur in highly visible chunks, as we can readily see. New jobs are created a few at a time, both in existing businesses and in new businesses. Even sophisticated observers do not recognize the ongoing job creation from the invisible hand of the market.

Try This Headline

Suppose that the New York Times or the Wall Street Journal had a headline:

100,000 New Jobs Created Today.

Actually, they could run that headline every business day, even during the recession, and it would be accurate.

How do we know? As usual, we start with data. The best illustration available is from the last recession, so let us look back to 2001.

The 2001 Example

The data presented here are drawn from the Business Dynamics series from the BLS. The data are not from surveys. The evidence is from state employment data. Since no one reports employment, and pays taxes, on phantom jobs, these are data that we should believe. Here is the evidence.

Source: Bureau of Labor Statistics seasonally adjusted data. (Unadjusted data show the same result for the year).

As one can readily see, over 35 million jobs were lost during the year. That is what you would get if you added up all of the layoff announcements and also included job cuts that did not make the newspaper. What most people do not realize is that over 32 million jobs were added. This development is not publicized.

By focusing on gross job losses we get a false impression of the problem. The net losses are bad enough; there is no reason to exaggerate.

Conclusion

There are three important conclusions:

1. About 90% of announced job losses were offset during the same month by job gains. We should be taking a 90% haircut to those newspaper articles.
2. There was substantial creation of new jobs in opening establishments, a total of over 7 million for the year. That is something to remember the next time someone scoffs at the idea of business births during a recession.
3. President Obama dropped the tax credit for new jobs, and that is a good thing. There is no way to separate the new jobs from the credit from those that would have occurred anyway. If the credit were paid for gross new jobs, the money would be gone in a couple of months.

Most importantly, this shows that we should remember that net job change is the key economic concept. That should also be our policy target.

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