Friday, April 20, 2012

A Different Way to Calculate RI Employment: The Dawn of a New Era?

As we recently discovered, the revised data on Rhode Island's payroll employment are going to be significantly different than the currently published numbers. First, these will now be calculated by the US Bureau of Labor Statistics (BLS). The BLS will not incorporate Rhode Island's idiosyncrasies, as manifested in its idiosyncratic data, in the same way as the Rhode Island Department of Labor and Training (DLT) has in the past. Second, as the basis for making ongoing monthly estimates of Rhode Island's payroll employment with the Current Employment Survey (CES), BLS projections will start with an earlier time period than has historically been used by Rhode Island's DLT. As a general forecasting rule, the farther from known data one projects, the greater the variability of the estimates will likely be. Taken together, these changes can be viewed as constituting a different methodology. Most importantly, expect this new methodology, which officially begins with the February 2013 data report, to produce differences with respect to both the reported values of payroll employment each month, and even more importantly, their volatility through time.

Today's ProJo story by Kate Bramson quoted an economist from the BLS New England office in Boston, Timothy Consedine, as stating the reasons for these changes: " ... to improve cost efficiency and 'to reduce the potential for statistical bias in state and area estimates.' "

It's certainly hard to argue with either of these noble intentions. Now let's put these assertions to a test. Since March of 2011, the manufacturing wage data for Rhode Island has been calculated by the BLS. Assuming that Mr. Consedine's assertions are correct, manufacturing wage data here should have improved at least by a bit, if not by a great amount, since the BLS took over their estimation. There has indeed been an extremely visible difference since that time. I won't tell you what it is. Instead, I will provide two charts of Rhode Island's manufacturing wage behavior and let you see if you can figure out what this change has been. In both charts, RI and US wages are contrasted. The first chart (click to enlarge) shows US and RI manufacturing wage growth since January of 2008.

Click on Read more to see the charts.

The second chart (click to enlarge) shows the implied year-over-year manufacturing wage growth rates for the US and RI, based on the above chart, over this same period.

Were you able to determine what the difference is? Apparently, unknown to persons in Rhode Island or our own DLT for that matter, hourly manufacturing wages here weren't less than $15, but actually much closer to $18-$20! As a result, Rhode Island's year-over-year wage growth for March of 2012 was 20.4 percent, versus a paltry 2.1 percent nationally. Think about that for a moment: if you take the square root of the March  RI rate, 4.5 percent, this still exceeds twice the national rate of growth! Wow, Rhode Island manufacturing must really be on the move!

So much for my skepticism. Have you figured out the most likely implications of these upward data revisions on the other labor market indicators? Assuming that payroll employment here has been rising since late last year, not falling as the existing data now show:
  1. Our unemployment rate is currently lower than the reported rate (it is below 11.1%);
  2. The number of Rhode Island residents who are unemployment is less than the number now being reported;
  3. Resident employment for RI is higher than the level currently reported;
  4. Rhode Island has not by this point experienced eight consecutive declines in payroll employment as the existing data indicate. In fact, there might not have been any declines for some time now; therefore
  5. Rhode Island is apparently not on the edge of a possible double-dip recession.
In light of all the labor market divergences that we are being exposed to, let me finish this post by quoting Emily Litella, of Saturday Night Live fame, played by the late Gilda Radner. Remember all the data saying that Rhode Island employment continues to plunge, and our unemployment rate continues to rise? NEVER MIND!

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