Question

What is the difference between the household survey and the establishment survey? Which survey do many economists prefer for measuring changes in employment? Why?

Short answer

The Household survey collects employment data from individuals while the Establishment survey gets its data from employers. Many economists prefer the Establishment survey to measure employment changes due to its broader scope, lower statistical noise, and minimal revisions.

Step-by-step solution

Define Household Survey

The Household Survey (also called the Current Population Survey) involves interviews with households, where data is gathered from individuals about their employment status. It estimates the unemployment rate and provides comprehensive data regarding age, sex, and race of workers, as well as part-time and full-time employment information.

Define Establishment Survey

The Establishment Survey (also known as Payroll or Current Employment Statistics survey) collects data from employers about the number of workers they employ, the hours they work, and the earnings they receive. This survey covers construction, farming, and government sectors and provides detailed industry data.

Compare the Two Surveys and Determine Preference

While both surveys provide valuable insights, many economists prefer the Establishment survey when measuring changes in employment since it is based on records of about 150,000 businesses and government agencies that cover approximately one-third of all nonfarm employees, thus providing a broader picture. Additionally, the Establishment survey tends to have less statistical noise and is less subject to revision.

Key concepts

Understanding the Household Survey

The Household Survey, also known as the Current Population Survey (CPS), is a critical tool for gathering employment data in the United States. It involves directly interviewing households to collect a wide range of information from individuals.

This survey provides detailed insights into the labor market by helping to measure and understand the unemployment rate. By talking to different households, the survey captures information such as:

• The employment status of individuals (employed, unemployed, not in the labor force).
• Demographic details like age, sex, and race.
• Information on both full-time and part-time employment.

The data collected helps policymakers and economists assess economic health, understand diverse employment trends, and address workforce imbalances. The Household Survey is crucial because it reflects the real-life experiences of a broad spectrum of the population, offering a snapshot of the labor force as a whole.

Key Features of the Establishment Survey

The Establishment Survey, often referred to as the Payroll or Current Employment Statistics survey, focuses on gathering data from businesses and government entities.

Unlike the Household Survey, which interviews individuals, this survey collects information directly from about 150,000 businesses and government agencies across various sectors. These businesses provide records on:

• The total number of employees currently on payrolls.
• Hours worked by employees.
• The wages and salaries paid.

The Establishment Survey is valued for its comprehensive industry-specific data, capturing information from sectors such as construction, farming, and government. Many economists prefer this survey because it provides a more consistent measure of employment trends and has less statistical noise. It covers a large sample and gives a detailed view of nonfarm payroll employment, making it integral to economic analysis.

Understanding The Unemployment Rate

The unemployment rate is a fundamental indicator of economic health and is primarily calculated using data from the Household Survey.

This rate represents the percentage of the labor force that is jobless yet actively seeking employment. Here's how it's determined:

• Surveyors calculate the number of unemployed individuals—those who are not working but are available to work and have been actively seeking a job within the past four weeks.
• The unemployment rate is then found by dividing the number of unemployed individuals by the total number of people in the labor force, effectively those either working or actively searching for work.

While the unemployment rate is a simple concept, it offers invaluable insights into the economy's condition. When the rate is high, it signals a potential lack of job opportunities, whereas a low rate suggests a robust labor market. It's important to consider other factors, such as underemployment and labor force participation, for a complete picture of economic vitality.

Introducing the Current Population Survey

The Current Population Survey (CPS) is fundamentally the same as the Household Survey, and it functions as a crucial source of labor statistics in the United States.

Conducted monthly by the U.S. Census Bureau and the Bureau of Labor Statistics, it is responsible for gathering data that helps shape our understanding of the national labor market. Some key aspects of the CPS include:

• Offering data on employment, unemployment, and other key labor force measures.
• Providing critical insights into associated demographic characteristics, such as age, gender, and educational attainment.
• Assisting in the calculation of critical measures like the unemployment rate, labor force participation rate, and employment-population ratio.

Being a representative survey of the U.S. civilian noninstitutional population, it plays a significant role in economic analysis and policymaking, guiding decisions related to job creation and economic policy adjustments. As part of the broader economic picture, the CPS contributes to understanding workforce dynamics comprehensively.