The annual benchmark revisions to state payroll employment released on March 8th by the Massachusetts Executive Office of Labor and Workforce Development were large and had a significant impact on real gross state product growth in 2011 according to revised estimates released today by MassBenchmarks, the journal of the Massachusetts economy published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston.

The number of nonagricultural payroll jobs added in 2011 (from December 2010 to December 2011) was revised downward from 40,700 to 9,100, resulting in a revised estimate of employment growth of only 0.3 percent for the December 2010 to December 2011 period (down from 1.3 percent). When those revisions are systematically incorporated into the MassBenchmarks Current Economic Index, for 2011 as a whole (on a 2010 fourth quarter to 2011 fourth quarter basis) we estimate real gross state product in Massachusetts grew 1.8 percent as compared to 1.6 percent for the U.S.

As can be seen below, the implications of these employment revisions for our understanding of state growth patterns in 2011 are significant.

What Just Happened to Our Job Growth?

Each year in early March the Massachusetts Executive Office of Labor and Workforce Development, in conjunction with the U.S. Bureau of Labor Statistics, releases benchmark revisions to the establishment survey (CES-790) payroll jobs estimates reflecting job counts from the Quarterly Census of Employment and Wages (QCEW, aka ES-202). The ES-202 is essentially a quarterly census of employers who belong to the Unemployment Insurance (UI) system, who employ approximately 97 percent of non-farm employment covered by the 790 survey. Each quarter employers subject to the UI law are required to report to the state workforce agency employment and wage information, including monthly payroll employment by month and wages and salaries paid during the quarter.

The ES-202 provides what is in effect a census of payroll employment that is used to update the history of the less reliable CES-790 survey, which is subject to sampling and non-sampling error. Since the ES-202 data are released with a lag of seven months (the ES-202 for the second quarter of 2011 was released on January 10, 2012), we can be confident that the revised CES-790 data is accurately describing the state labor market through June of 2011.

The estimates for July 2011 and later are updated with revised statistical estimates of employment due to net firm births and updated seasonal factors, but substantial errors may remain. Those errors will be officially corrected next year with the next annual benchmark procedure but we will have a much better sense of the accuracy of the revisions in the third quarter of 2011 when the ES-202 data for that quarter are released later this month.

While we have reservations about the extent to which recent employment data are accurately describing current and recent economic conditions, the fact that the sheer scale of these revisions materially changes our understanding of the Commonwealth's economic experience in 2011 is a stark reminder of how much our understanding of the state economy relies on these official data sources and reminds us that an analysis is only as good as the data upon which it is based.  

MassBenchmarks is published by the University of Massachusetts Donahue Institute in cooperation with the Federal Reserve Bank of Boston. The Donahue Institute is the public service, outreach, and economic development unit of the University of Massachusetts Office of the President. The MassBenchmarks Current Economic Index is compiled and analyzed by Dr. Clayton-Matthews, Associate Professor of Economics and Public Policy at Northeastern University and released quarterly by MassBenchmarks.