Friday, May 11, 2012

Tim Colebatch has cracked it. Why the jobs data is flawed

Tim Colebatch in today's Age:


Year to Sept 10, Year to Sept 11

Population growth: +325,000, +320,000
Growth in adult population* +394,000, +224,000
Growth in jobs: +366,000, +111,000

Source: Bureau of Statistics. * Adult population estimate used in jobs data.

The official jobs figures published by the Bureau of Statistics have significantly underestimated recent job growth, due to forecasting errors that first overstated, then understated, the growth in the adult population.

The errors, which have serious implications for economic policy, began when the number of foreign students living in Australia fell rapidly after immigration laws were tightened in late 2009.

The unforeseen fall at first led Bureau forecasters to greatly overstate population growth — and When it realised the error, rather than correct it by revising the previous jobs figures the Bureau decided to understate population growth in future forecasts, depressing the labour force figures. These then reported a net loss of 900 jobs in 2011.

On one estimate, once the figures are adjusted for the erroneous forecasts, at least 100,000 of the jobs supposedly created in 2010 in fact arrived in 2011.

The errors are not in the official estimates of population growth, which are issued six months after the period to which they apply. They are in the estimates — in effect, forecasts — of the adult civilian population used in the labour force figures.

Usually the two series move together. But in the year to September 2010, population growth (including children) shrank rapidly, from 433,000 to 325,000, whereas the forecasts for the labour force estimated that adult population growth would remain steady at 394,000.

In the year to September 2011, that suddenly reversed. Actual population growth was little changed at 320,000, but the Bureau slashed the forecasts used in the labour force figures from 394,000 to 224,000.

Since most people interviewed in the labour force survey are employed, the effect of understating population growth was to understate employment growth.

The Bureau defended itself yesterday in an article published with the labour force figures, arguing that its main focus is on getting a correct reading of the unemployment rate and workforce participation rate — which come straight from the survey data.

But its approach seriously misled readers, commentators and ultimately the public, about the size of the slowdown in the jobs market — and hence, the true state of the economy.

One prominent commentator seized on the reported fall in jobs to describe the labour market as being in its worst shape since 1992....

The Australian Statistician, Brian Pink, yesterday stood by the Bureau’s figures. “We do not believe that the employment growth that we have shown has been biased in some way by the method - that’s our view,” he said.

Senior economic officials are aware that the data is flawed, but have refrained from making any public statement, so as not to reduce confidence in the Bureau.

But tax data released with the Victorian and Federal budgets confirm that the jobs markets in 2011-12 has been stronger than the official figures show.

The Bureau estimates that jobs in Victoria fell by almost 20,000 in the first nine months of 2011-12, with 38,000 full-time jobs lost. Yet the state’s payroll tax revenue rose 7.7 per cent in that time, with no fall in jobs.

Tuesday’s Federal budget showed PAYE income tax revenues up 9.7 per cent in 2011-12, faster than the 9.4 per cent growth in 2010-11. While officials believe job growth has weakened in recent months, the tax take is strong evidence that the Bureau’s estimates are wrong.

Westpac senior economist Justin Smirk said the bank’s economics team is uncomfortable with the way the Bureau has tackled its problem.

‘‘It does raise concerns about the accuracy of the data, and we still have questions about the actual employment levels and their growth path’’, he said.

Published in today's Sydney Morning Herald and Age

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