Why rise in part-time employment does not explain U.S. jobless rate decline

October 9, 2012

The September unemployment rate was the lowest since December 2008 after surprisingly large back-to-back declines, sending economists back to the drawing board after big forecast misses. Some pointed to the large increase in involuntary part-time employment – erroneously so, according to an analysis from Ray Stone, economist and managing director at Stone & McCarthy.

The jobless rate fell to 7.8 percent last month from 8.1 percent in August.

After a quick, superficial look at the September household data, several commentators embraced the thesis that it was due to a 582,000 increase in Part-Time Employment for Economic Reasons. These are people who prefer full-time employment, but sadly had to settle for a part-time job. These 582,000 part-timers accounted for much of the overall 873,000 increase in September civilian employment.

This Part-Time for Economic Reasons statistic “was a Greenspan favorite, and certainly over longer periods of time such is a measure of labor distress,” Stone said. “But, the month-to-month wiggles in this series usually turn out to be noise. In September this metric rose to 8.613 million.”

Especially interesting is that each of the last three Septembers saw similar surges in the Part Time for Economic Reasons statistic and that the size of the September 2012 increase was similar in size to the previous  three Septembers when nothing particularly noteworthy occurred to the unemployment rate.

In that context, “is it fair to attribute the 0.3 percent decline in September 2012′s unemployment rate to a surge in the Part-Time for Economic Reasons statistic?” Stone asks.

WHY THE SEPTEMBER SURGE?

“After a respondent to the household survey indicates that he or she is employed, the interviewer drills down to ascertain whether the respondent is employed full or part-time,” Stone explains. If the answer is ‘part-time,’ the interviewer “drills down further” to see if the respondent is working part-time out of choice or because nothing else is available.

The reason for the recent recurring seasonal pattern in which September full-time employment drops on a seasonally adjusted basis – and part-time employment surges – is not entirely clear, Stone said.

September is a month of dramatic changes in the composition of the labor force and employment. Seasonal summer employment typically ends. Students with full-time summer jobs go back to school and many take part-time jobs during the academic year. Teachers with summer jobs, shift back to their full time teaching positions. Part-time adjunct instructors at universities and colleges reassume part-time teaching positions. Mothers who take care of children during the summer may assume full or part-time positions when the school year begins. The important thing to note about labor market conditions each September is that the dynamics are more complex than most other months.

The recurring pattern of declining full-time and surging part-time employment each September suggests seasonal adjustment factors for these data haven’t fully compensated for the evolving September labor market dynamics, Stone said. Especially noteworthy is that the surge in part-time employment in September is “far more dramatic” for those who report they are working part-time by choice, not compulsion, he said.

Most series from the household survey are independently seasonally adjusted, Stone pointed out. “One drawback of this approach is that the seasonally adjusted components (i.e. Voluntary Part Time, and Part-Time for Economic Reasons) don’t add up exactly to the broader aggregate (Part-Time Employment),” he observes.

“(This means) we have to understand the limitations of drawing too rich a set of inferences from the component data,” Stone says. “The statistic ‘Part-time for Economic Reasons’ as a percentage of total part-time employment has been running about 30 percent to 31 percent of total part-time employment,” he observes.

That means the 31 percent of part-time respondents who indicated in September that they are working part-time because they can’t find the full-time positions they would rather have “isn’t much different than earlier months,” Stone said. “What is different is the (September) surge in (total) part-time employment.”

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No one yet has provided an explanation of this discrepancy:

http://www.marketwatch.com/story/fact-ch eck-most-new-jobs-are-full-time-ones-201 2-10-05

Contrary to what most reports have been saying, this report says almost all of the 873,000 new jobs were full time! Many experts explained the discrepancy between the BLS household survey and its employer survey as due to the part-time numbers. But if in fact the household survey is also measuring full-times, is nearly 1 million new FULL-TIME jobs in one month really believable? Why is the household survey new jobs count 8 times higher than the employer survey if they both are measuring full-time jobs? For statistical studies, when they most come under question is when they are INTERNALLY inconsistent.
At the rate the BLS is claiming our economy is now “booming” we can match the Romney claim of 12 million new jobs over 4 years in just one year!
I think you’ll agree this number is not believable but that is indeed what the BLS data seems to be saying near the bottom of this table:

http://www.bls.gov/news.release/empsit.t 09.htm

Bob Clark

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