93% Of All Jobs "Created" Since 2008 Were Added Through The Birth/Death Model -

93% Of All Jobs “Created” Since 2008 Were Added Through The Birth/Death Model

Jun 03, 2017Jeremy ParkinsonFinance0

According to the prevailing narrative, job growth in the US, where GDP over the past decade has been on par with that in the 1930s, is one of the otherwise brighter economic indicators in a time when much of the economic data such as capital spending, productivity and especially wage growth (so critical for the Fed’s future plans) has been a chronic disappointment. Today, for example, headlines blast that the US has enjoyed 80 months of continuous jobs growth with unemployment hitting 4.3% – the lowest since 2001. However, there is more to this “strong” number than meets the untrained eye.

As our friends at Morningside Hill calculate, a full 93% of the new jobs reported since 2008 – 6.3 million out of 6.7 million – and 40% of the jobs in 2016 alone were added through the business birth and death model – a highly controversial model which is not supported by the data. On the contrary, all data on establishment births and deaths point to an ongoing decrease in entrepreneurship.

Here are the details of how over 90% of the jobs created in the past decade were nothing more than a “statistical” adjustment in some BLS model.

The controversial birth death adjustments

In order to account for jobs created or lost by new business formations or bankruptcies each month, the BLS introduced the birth/death adjustment. It started during the Reagan administration as Reagan was complaining that the bureau was undercounting the jobs he created. The birth-death model used to have a terrible name – the “bias adjustment factor.” This adjustment is computed using a model based on probability-based sampling methodology.

The table below shows the number of jobs that were added through birth/death adjustments over the past 17 years and the percentage of jobs added through the birth/death model

Let’s analyze the data.

Before 2003 few jobs were added through the adjustment, despite the fact that net business formations were much stronger back then (see data below).

Then, what strikes us as odd, is that according to the BLS in the depths of the 2007-2009 recession, the birth/death adjustment continued to add a lot of jobs – 904,000 jobs were added in 2009 alone. One would assume that in the nadir of the Great Recession when business defaults skyrocketed, the birth and death adjustment would be a net negative and subtract from the overall jobs number instead of adding to it.

Lastly, it turns out that a full 30% of jobs created since 2010 or 4.5 million out of 15 million jobs were added via the birth/death adjustment. It is also interesting to note that 40% of the jobs added in 2016 came through the adjustment.