The federal government may have seriously underestimated the effect of the recession on California and some other major states and undercounted job losses nationwide by more than 2 million, according to an analysis by the California Department of Finance.
Payroll tax filings in California, New York and other states indicate an extraordinary free fall in jobs in late 1990 and early 1991. California has suffered its worst job losses in more than half a century, according to these records. The U.S. government may have underestimated this plunge in California by more than 500,000 jobs, according to state officials.
"To me it's very obvious that the recession is far, far deeper than the (Labor Department) figures are indicating," said Ted Gibson, principal economist with the Department of Finance in Sacramento.
The surprising state reports--while far from definitive--are gaining attention because they are based on statements filed quarterly by almost all private employers. By contrast, the Labor Department's widely quoted jobs data comes from smaller surveys that may not fully detect sudden, sharp swings in the economy for many months.
The payroll tax figures not only raise questions about the accuracy of information relied on by U.S. policy-makers as the recession gathered steam in 1990 and 1991, but also may provide a clue as to why consumer confidence last year fell to the lowest levels in a decade, according to economists in government and the private sector.
"There must be something rotten in Denmark with those national numbers, because we haven't gone through a mild recession," said Allen Sinai, chief economist with the Boston Co. "I think what the jobs data in states like California is finding is much more telling."
The nation's jobs picture is drawn from findings by the Labor Department's Bureau of Labor Statistics, in cooperation with state agencies, such as the California Employment Development Department. At issue are the payroll employment statistics, which describe how many jobs are gained or lost each month.
Analysts in and outside government watch the payroll figures closely; many economists believe that they offer more insight into the economy's course than the unemployment rate. A puzzling and vast gulf seems to have opened between the official payroll jobs totals--meant to reflect the number of jobs in the economy--and what employers reported to the government early last year.
Consider the experience of California. Since the recession began in mid-1990, the state appears to have lost 660,000 jobs, many at the beginning of last year, according to a study of payroll tax records by the Department of Finance. There has not been such a staggering drop--5% of the entire job total--since 1938.
By comparison, the official job totals computed by the state Employment Development Department and the federal Bureau of Labor Statistics tell a dramatically different story, recording a drop of just 160,000 jobs in California.
Nationally, the disparity appears to exceed 2 million, Gibson said, led by apparent underestimates of the recession last year in California, New York, Massachusetts, New Jersey and Michigan. According to an internal Bureau of Labor Statistics document, payroll tax records from New York last March suggested a loss of more than 400,000 jobs that had not been counted in official labor statistics.
"The federal figures are too optimistic and they come too late," said Claudia Hutton, a spokeswoman for the governor's budget office in New York, where budget planners "have gotten burned" by federal revenue projections that proved too optimistic. "In New York, I don't think it's an exaggeration to say that just about everyone knows someone who has lost a job."
When asked about the gap, Bureau of Labor Statistics officials said they annually review their statistical assumptions about job totals, in addition to making routine revisions, and are expected to adjust last year's findings on the number of jobs for California and the nation in the coming months. Bureau officials in Washington have said that they may revise the nation's job count downward by 650,000.
Some economists also point out that the payroll tax records, for all the interest they are sparking, are not perfect and should be considered in context. It is possible that some of the tax data is inaccurate, reflecting cheating by hard-pressed employers. And discrepancies between official job counts and state payroll records are not universal. They appear to be focused in a handful of major industrial states in the East and West.
Still, the gaping disparity has perplexed the bureau's statisticians and prompted unusual reviews of data that in non-recessionary times cause more in the way of glazed eyes than public controversy.
"We've been rechecking the figures daily for five months," said Merlin E. Meyer, a Bureau of Labor Statistics official in the San Francisco regional office.