The first Friday of every month is Employment Data Day in Canada and the US. The US Bureau of Labor Statistics releases employment data from its Current Population Survey (CPS - the household survey) and its Current Employment Statistics survey (CES - the payroll or establishment survey). For reasons I'll get into later, the establishment survey is generally considered to be the more reliable of the two. Here at home, Statistics Canada releases employment data from its Labour Force Survey. (The headline numbers are in Cansim Table 282-0087.)
The CPS and the LFS are based on samples of households - some 60,000 in the US, about 55,000 in Canada. But Statistics Canada also publishes employment data based on its own establishment survey - the Survey of Employment, Payrolls and Hours (SEPH - headline numbers in Cansim 281-0025). We don't hear nearly as much about the SEPH as we do the LFS - mainly because instead of being released on the first Friday of the month following the month in question, SEPH data are released two months later. The demands for media space being what they are, the SEPH is covered with all the enthusiasm it can muster for two-month-old news.
But maybe we should be paying closer attention to the SEPH.
Both the trader and analyst communities, as well as the Bureau of Labor Statistics itself regard the establishment survey as being more reliable than the household survey. This is mostly because of the larger sample size of the establishment survey; while the household survey questions about 60,000 households across the United States, the establishment survey has a sample size of 400,000, about seven times larger.
(See also this pdf from the BLS)
As far as statistical precision goes, StatsCan's SEPH is even more accurate than the CES, because it is a census compiled from administrative files:
Administrative information for total gross monthly payrolls and the total number of employees for the last pay period in the month are obtained from payroll deduction (PD) accounts maintained by Canada Revenue Agency. Public Institutions Division of Statistics Canada provides information for general government services at the provincial and federal levels.
Recall that a census gathers data from the entire population: there is no sampling, so there is no sampling error. In contrast, the stated standard error for the LFS survey is 27,000 - which means that aside fom December 2009, every announced change in employment announced by the LFS during the recession and recovery has not been insignificantly different than zero at the 5% level.
But that doesn't mean that the SEPH is a fortiori a better indicator for labour market conditions: what it measures and what the LFS measures are different things:
Estimates of employment, wages and hours derived from these two surveys differ for a number of reasons.
First, the reference periods are different. LFS data are collected during a "reference week," usually the week following the 15th of the month. For SEPH, the reference period is an entire month.
The LFS includes people who are self-employed, as well as workers who take unpaid leave. SEPH does not cover these groups. Industry coverage for the LFS is comprehensive; SEPH excludes agriculture, fishing and trapping, and religious organizations.
The two count multiple job holders differently. In the LFS, people with more than one job are counted only once as "employed." SEPH is a count of filled positions on payroll, so each job is counted separately.
Finally, national estimates produced by the LFS do not include people living in the three territories or on reserves while SEPH does. LFS estimates are based on where people usually reside. SEPH counts employees in the province or territory where they work, although this has little effect on the comparability at the national level.
(These differences are similar to those between the CPS and the CES.)
Here is what the two series look like over time. The obvious problem with the SEPH is that it started in March 1994:
So we have two competing data sources for Canadian employment - to what extent do they agree? In the short term, the differences are surprisingly large. Here is a scatter plot for the monthly growth rates for the two series:
If the two series moved in proportion, the scatter plot would be clustered along the blue 45-degree line. But the coefficient of correlation between the two monthly employment growth rate series is only 0.26, and the two series move in opposite directions in 29% of the sample. In the US, the two series go back to 1948, and they are more closely linked than in Canada: a correlation coefficient of 0.43.
Update: Nick wonders what we'd see with the axes reversed:
Here is how the two series have moved during the recession and the recovery. Since the SEPH doesn't cover the self-employed, I've added another series for LFS employment for employees:
The story we've been telling from the LFS data is that employment growth has been flat since mid-2011. Perhaps we should be revising that narrative towards one in which employment growth has continued, but at a slower rate.
Like almost everyone else, I've been treating the SEPH as almost an afterthought. I started taking a closer look at the SEPH because I couldn't - and still can't - make the link between the bad LFS numbers we saw out of Quebec in the last few months of 2011 and, well, anything else.
But now that I've taken a closer look, I'm going to start making a bigger deal of the SEPH numbers from now on.