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

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.

The reason the BLS wanted to include this adjustment was a perception that they were undercounting jobs created through new start-up business formations (that were too young and too small to show up in the Establishment Survey). Those start-ups would eventually appear in their data, but with a few months’ lag. Therefore, if there was a steady supply of new start-up businesses and no sudden shifts in the trend, no adjustment would be necessary. Logically, it would only make sense to apply the adjustment if there is a significant increase in the rate of start-up formations, which has not materialized. On the contrary, multiple studies track a consistent decline in new business creation. Literally every study we have found documents the consistently deteriorating entrepreneurial environment in the US.

The following charts trace a clear downward trend in both employment gained from private sector births and the number of business births per year. Notice the suppressed level of births after 2008.

Furthermore, self-employed persons as a percentage of the working age population and the number of jobs created by establishments less than one year old are also declining.

A study by Harvard Business School entitled “Problems unsolved and a nation divided” summarizes the findings of its multi-year long project called “The US competitiveness project.” The study is a “fact-based effort to understand the disappointing performance of the American economy.” We found this project to be well worth the read and have selected the following chart (below to the left) depicting the multi-decade slowdown in new business formation. Further supporting the Harvard study findings, a Brookings Institution paper called “Declining business dynamism in the United States: a look at states and metros” shows that business formations slowed down and business deaths accelerated after the crisis of 2008 (below to the right).

Below to the left we have a chart from the Economic Innovation Group showing the net annual change in the number of US firms. Notice the significant slowdown after 2008, including 3 negative years. This is clearly not captured by the data from the Bureau of Labor Statistics. Below to the right we have a few charts from the Wall Street Journal summarizing some data points that confirm these trends.

With the data on new business formations and deaths in mind let us now go back to the BLS’s official birth / death adjustments. We have charted the net jobs added through the BLS model and ran a linear trend line to see if it captures the deteriorating entrepreneurial environment. In the chart below, the upward-trending line representing net jobs added through the adjustment is in complete dissonance with all the other data.

The Bureau of Labor Statistics (BLS) seems to be alone in its belief that the entrepreneurial environment in the US is improving. We believe that the BLS has been artificially inflating the monthly payroll numbers via the birth and death adjustment. This overstatement is not trivial in nature – the adjustment added 30% of all jobs reported since 2010.

h/t Morningside Hill


techpriest hongdo Sat, 06/03/2017 - 18:37 Permalink

Like Hillary Clinton winning the election?

Seriously though, back when I was doing science full time (I am currently programming some chemical software for fun), I noticed that the big problem with models is that your inputs and assumptions (hard-coded inputs) could dramatically skew the data, and making realistic assumptions + getting good input data was critical to getting anything meaningful out of the data.

The thing is, the Obama administration has decisively made the BLS a political organization, whose main job is to skew the numbers to make the world rosier than it really is.

In reply to by hongdo

Giant Meteor Sat, 06/03/2017 - 11:22 Permalink

"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."Well I should say so ..Not supported by data? Yeah, that sounds about right ... 

Giant Meteor silverer Sat, 06/03/2017 - 11:37 Permalink

Basically when one stops counting whole swaths of the population as unemployed or under employed, you can get the official unemployment number down to zero eventually ..46 million on government food assistance, disability skyrocketed post 2008-09Wealth care, pension costs continuing to bankrupt cities, states, municipalitiesNow of course we have many, many folks enjoying the fruits of government work, top shelf health care and the like. The military, wealth care, financialization of everything complex ..We have capitalism without capital, profits without profit .. markets that only move in one direction, in this continuous growth birth death model adjusted world .. sure, sure, a world devoid of reason, created of whole cloth and utter bullshit .. but aside from that everrything is really quite peachy ..Bombing nations, forced migrations, usury, debt, penury as far as the eye and minds eye can conceive ..War on this, war on that .. war on everything and everybody ! Wars, Wars, Wars ! All wars are banker war's, and by God they're winning too !  

In reply to by silverer

Giant Meteor peepsterC Sat, 06/03/2017 - 12:14 Permalink

Everything ..edit; It occurs to me my answer (although accurate) may have been somewhat abrupt ...I believe I covered the topic at hand in the opening sentence or two ..I could have easily covered the topic, which by the way has been covered many times previously, with one word.Bullshit ..You see, we have reached peak bullshit, in virtually every fooking thing ..Bare in mind, this is government work we are talking about. Everything is politicized, gamed, meant to bright side the populace into the fairytale recovery / perpetual growth meme, when clearly, only those not slightly paying attention, all out moron's, or those in on the caper, should believe otherwise ..It must be noted, yes, there are segments of the population that have greatly benefited via FED monetary fuckery.So stipulated.As to the rest of the post, you must understand, all of these lies, peddled government bullshit, and all other of any great import, are wholly innerconnected, one to the other, much like was discovered in 2008-09 in the "Global financial Crisis."The global rent seeking financialization of everything model. The money changers of debt, death and destruction, and those (government syncopants) that do their bidding .. control all. A rentier, fee based e CON omy and expecting any other thing than lies to support their models is a bit naive.Futhermore these troubles, globally, have a common root ... So yes, your government lies, is staffed by well compensated liars, deceivers, con men and grifters pushing bullshit numbers  ..I do not believe this should come as any great surprise ..

In reply to by peepsterC

Endgame Napoleon Giant Meteor Sat, 06/03/2017 - 12:19 Permalink

For one thing, where is the money for new business births, as opposed to lines of credit for established businesses? For another thing, jobs that do not last very long do not even sustain the typical, year-long lease agreement on an apartment. Such "jobs," along with jobs that require welfare/taxfare to finance rent and other major household expenses, should not be called jobs. There should be a separate, economic category for this type of employment. Maybe, these should be called odd jobs, like the babysitting done by teenagers whose parents cover their housing and food expenses. It sounds like the birth/death thing was just a marketing device for politicians, set up by a politician who was an expert in that field due to his Hollywood success. Obama did not have to worry; the fake news provided his PR without the need of fancy labor statistics tricks.

In reply to by Giant Meteor

Bay of Pigs ptoemmes Sat, 06/03/2017 - 11:56 Permalink

I've long maintained that I have learned more here at ZH the last 7 years than I did in my previous 49 years here on Earth.

Place is pretty amazing and lucky to have so many intelligent, funny, witty, and talented posters. And if you don't believe me go read some other sites and you'll see that I'm correct.

Rock on Hedgers!

In reply to by ptoemmes

itstippy kenny500c Sat, 06/03/2017 - 12:13 Permalink

The FRED has probably the best macro tax data available.  It's not granular enough to separate payroll, income, corporate taxes though.https://fred.stlouisfed.org/series/W006RC1Q027SBEABear in mind too that tax laws have become mindbogglingly complex as Congress has sought to use income tax incentives for everything from social engineering (child tax credits, mortgage interest deductions, "green energy" deductions, that sort of thing) to outright favoritism (a myriad of tax loopholes for corporations and wealthy individuals).  Many working people and unearned income recipients pay no Federal income tax because of the tax structure, so income tax receipts aren't a very accurate measure of actual jobs.

In reply to by kenny500c

Sick Underbelly Sat, 06/03/2017 - 11:46 Permalink

This is the golden age of recovery, y'all...keep that in mind, toe the party line, and  nevermind you're standing in the welfare line.Times are good, improving,. We're going to be producing all these great cars in Murica, taxing the evil foreigners at the gate...and, nevermind that car has sat there over 100 days.. buy a new car! Stimulate the economy...for Murica!It sure looks like lies to me...sounds a lot like lies...these things don't pass the sniff test, either.  Not about to taste it, and all it wants is just a little feel.  So, with 60% sensory confidence, I have to call these "added jobs numbers" a lie.And, if these numbers are a lie...what other numbers are a lie from the BLS...or other government agencies?  *gasp* I sure hope they aren't lying to us in other areas! Whoever could we trust, then?!?!?  

Anonymous_Bene… Sat, 06/03/2017 - 11:49 Permalink

These numbers will never reflect the growing segment of millions of Americans such as myself who work and employ others to do the same entirely sans government forms, paperwork, reporting and/or interference.Disregard them.

quesnay Sat, 06/03/2017 - 11:49 Permalink

By propping up old inefficient companies that should have failed, the government prevented new companies from taking their place. The old companies become zombies. Slow, inefficient, and lacking creativity/innovation. This is the same thing that happened in Japan (quick name a big new successful Japanese startup ...). We have decided to follow the same path of stagnation.By not taking this shift into account the BD model has become wildly inaccurate, using old statistics to predict current behavior that simply no longer applies.

silverer quesnay Sat, 06/03/2017 - 11:57 Permalink

Yes. The government does one thing well to stymie true capitalism. The erect barriers to entry, allowing companies to monopolize certain industries. This happened long ago with insurance companies. Way back I remember seeing very attractive quotes for auto or health policies, then you'd call and get this: "Oh, you live in (______), sorry, we can't sell that in your state."

In reply to by quesnay

small axe Sat, 06/03/2017 - 11:57 Permalink

layers upon layers of economic models, seasonal adjustments, goal-seeked data, absurd theories (hedonics), and blatant lies...we'll wake up one day and realize that our economy went missing years ago, and currently resides as an expat on Planet Financialization.

Consuelo Sat, 06/03/2017 - 12:11 Permalink

  "We believe that the BLS has been artificially inflating the monthly payroll numbers via the birth and death adjustment." Cynicism aside, one should read the line above - probably more than once and ponder the ramifications.    What seemed as once disparate events and situations from seemingly disparate governmental organizations and participants, will soon come into clear focus as a 'force' moving in a singular direction.Hint: It is a direction that is Not friendly to the majority of participants on this forum - your worldview or perhaps even in the not-too-distant future, your existence in mainstream society. 

Ricki13th Sat, 06/03/2017 - 12:17 Permalink

Very good article by Stockman here ( http://davidstockmanscontracorner.com/the-bls-skunk-in-the-woodpile-67-…) in addition to this one. on how the Gov't can manipulate the job numbers to make the economy look great. The important thing to look for in the BLS report is the labor participation rate. It needs to rise in order to for this economy to really grow. The birth/death rate needs to improve. Funny how Trump has not exposed this manipulation as to the root cause of why he won the election. Instead he is making a yuge mistake by taking responsibility for equity bubble in the stock market and bullshit job numbers. Once these elite parasites choose to implode their Frankenstein creation people will blame Trump instead of the man behind the curtain.

Endgame Napoleon Ricki13th Sat, 06/03/2017 - 12:40 Permalink

You are so right. Trump won the election due to a bunch of middle-aged and often underemployed cross-over voters from the Democratic Party, in addition to underemployed Independents, people so cynical about the rigged system that they have not bothered to vote since Perot and Republican populists in the Rust Belt, among other places that have seen at least 30 years of middle-class blight. These are the people who actually turned out to vote in large numbers, with hardcore, traditional and never-Trumper Republicans opting to vote against Hillary. Some libertarians probably did that as well, with others voting for Rand or Cruz in the primary and then third party in the general. The people who are hurt most in this part-time/low-wage/gig economy -- middle-aged citizens who cannot reproduce their way into wage supplements from Uncle Sam that cover housing and food, not to mention $3,337--$6,269 tax credits for reproduction -- are the same people who are responsible enough to go through with the chore of voting, which involves registration and standing in long lines.

In reply to by Ricki13th

Ricki13th Sat, 06/03/2017 - 12:25 Permalink

This is the best article on here in awhile, I like when ZH focuses on financial news instead of these political squabble. Both parties are bullshit and perpetuate fraud and propaganda on the people. 

Endgame Napoleon Ricki13th Sat, 06/03/2017 - 12:45 Permalink

Yes, the hardcore financial angle is what distinguishes Z-Hedge from other sites. It is value added, educational information for people who are not experts. Some real experts seem to debate in the comment line, not that I am one of them in case you guys had not noticed....But I am interested in economic issues. Most sites just give opinions. Most sites are not as concerned with economic issues. So funny. I bet they'll be concerned when another severe downturn hits. It will not matter whether they are rich or poor. They'll all care then.

In reply to by Ricki13th