Man Without Qualities

Saturday, December 06, 2003

Another Gray Lady Waddle

The New York Times, in the form of a Floyd Norris article, waddles in, falls down and can't get up, in its very-late-breaking report on the divergence between the payroll survey and the household survey of the nation's employment. The significance of this divergence has been emphasized repeatedly by various bloggers (including the Man Without Qualities) for many months. The trajectory of the Gray Lady waddle is predictable, as Don Luskin points out quite effectively. At his nadir, Mr. Norris comes close to dismissing the self-employed as at-home spammers.

Specifically, the Times reports:

The self-employed are a group that statisticians have a hard time dealing with, and the apparent growth in that group may or may not be a good sign for the economy. Some people who say they are self-employed may really be out of work and trying to bring in money as consultants or freelance workers. Others may be doing very well, living a dream of boss-free success. In any case, the government reported that the number of self-employed workers rose by 156,000 last month, to 9.2 million. That gain was a primary reason that the unemployment rate dropped to 5.9 percent.

But there are other government statistics that squarely address - although not fully resolve - the supposed gap in understanding of the typical self employed, as Mr. Norris could have read in an excellent Wall Street Journal article by Jon E. Hilsenrath about a week ago:

Self-employment has increased by 400,000 in the past year alone, according to a monthly survey of American households conducted by the Labor Department. But it has been hard to tell whether these new self-employed workers were really profiting from their ventures, or whether they were just biding their time during a period of painful unemployment.

Now, investment strategist Kenneth Safian says he has found evidence that small enterprises really are playing an important role in the recovery. The evidence is buried in the government's monthly personal-income report, which was released last week. Proprietors' income, which is the income earned by individuals from running their own businesses and from partnerships, is surging. The Commerce Department reported Wednesday that proprietor's income, excluding the farm sector, was up 8.6% from a year earlier. By contrast, the wages and salaries of individuals on corporate payrolls were up just 2.3%.

Proprietor's income covers a broad swath of the economy -- everything from larger law firms to one-person construction companies or tech consultants operating out of a home office. Mr. Safian, who is president of Safian Investment Research Inc., based in White Plains, N.Y., says the upshot of the latest trend is that more workers are striking out on their own and earning money doing it. The economy, he says, "is becoming more entrepreneurial."

If that is the case, it would say a lot about the dynamism of an economy that has been through series of shocks in the past three years. It might also help explain why official payroll employment levels have been so depressed in recent months. If more people are striking out on their own, then their job status in some cases wouldn't show up in the government's measure of employment levels at established businesses, which is down 2.4 million since the recession started in March 2001.

Unfortunately, there are no official statistics for business formations across the $10 trillion economy. And there are other explanations for the recent pop in proprietor's income. .... Today, proprietor's income is taking on a rising share of total national income. ...It is possible that the latest burst of income will be revised Dec. 10, when the government updates its estimates of national income and output using fuller data sets from the IRS.

That release in early December might also provide a glimpse of which industries account for the apparent rise in business formations. Right now, the government's data break down proprietor's income into only two sets -- farms and everything else.

Who knows, maybe the December 10 data will confirm Mr. Norris suggestion that most of those proprietorships are just at-home spammer, not dignified wage-slaves like Mr. Norris.

It could happen. But I wouldn't bet on it.

MORE: Interesting alternative universes from Steve Antler.

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