[Federal Register Volume 69, Number 215 (Monday, November 8, 2004)]
[Notices]
[Pages 64789-64791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-24733]


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DEPARTMENT OF LABOR

Bureau of Labor Statistics


Proposal to Revise Method for Estimation of Monthly Labor Force 
Statistics for Certain Subnational Areas; Request for Comments

AGENCY: Bureau of Labor Statistics, Labor.

ACTION: Request for comments on proposed action.

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SUMMARY: The Department of Labor, through the Bureau of Labor 
Statistics and, specifically, the Local Area Unemployment Statistics 
(LAUS) program, is responsible for the development and publication of 
State and local area labor force statistics. In the LAUS program, 
monthly estimates of the labor force, employment, unemployment, and the 
unemployment rate for more than 7,000 areas in the Nation are developed 
and issued. A major program redesign to improve the methodological 
basis of the LAUS estimates and update the geography and techniques to 
reflect 2000 Census data was initially funded in FY 2001. After 
completion of various long-term research projects, the BLS plans to 
implement improvements to the estimating methods with State and area 
LAUS estimates for January 2005, to be published in March 2005.

DATES: Written comments must be submitted to the office listed in the 
Addresses section of this notice on or before December 10, 2004.

ADDRESSES: Send comments to Sharon P. Brown, Chief, Division of Local 
Area Unemployment Statistics, Bureau of Labor Statistics, Room 4675, 2 
Massachusetts Avenue NE., Washington DC 20212.

FOR FURTHER INFORMATION CONTACT: Sharon P. Brown, Chief, Division of 
Local Area Unemployment Statistics, Bureau of Labor Statistics, 
telephone number 202-691-6390.

SUPPLEMENTARY INFORMATION: 

I. Introduction

    The Department of Labor, through the Bureau of Labor Statistics, is 
responsible for the development and publication of State and local area 
labor force statistics through the Local Area Unemployment Statistics 
(LAUS) program. Currently, monthly estimates of employment, 
unemployment, and the unemployment rate are prepared for more than 
7,000 areas, including Census regions, Census divisions, all States and 
the District of Columbia, Puerto Rico, metropolitan and small labor 
market areas, counties, cities of 25,000 population or more, and all 
cities and towns in New England regardless of population. In a multi-
year, multi-project initiative that began in FY 2001, the following 
improvements to State and area labor force estimation were identified:
    <bullet> State time series estimating models with real-time 
benchmarking to the national monthly employment and unemployment levels 
that will address long-standing issues related to accuracy and end-of-
year revision,
    <bullet> the extension of model-based estimation to six additional 
substate areas and the respective balance-of-State areas, and
    <bullet> two enhanced procedures for developing other substate 
areas that employ innovative and dynamic estimating methods.

II. Background

    A hierarchy of estimation methods is used to produce the State and 
area labor force estimates, based in large part on the availability and 
quality of data from the Current Population Survey (CPS), the office 
measure of the labor force for the nation.
    Improved Time Series Models with Real-time Benchmarking. The 
estimates for States, the District of Columbia, New York City, Los 
Angeles metropolitan area, and the balances of New York State and 
California are developed using signal-plus-noise models. These models 
rely heavily on monthly CPS data, as well as current wage and salary 
employment estimates and unemployment insurance statistics. The State 
CPS annual averages of employment and unemployment are used as 
benchmarks to the model-based estimates at the end of the year. In 
general, the current method of model estimation and annual benchmarking 
results in an overestimate of employment and an underestimate of 
unemployment and the unemployment rate in States as compared to the 
national CPS estimates. The annual benchmarking approach reintroduces 
sampling error into the series and results in significant end-of-year 
revisions in a large number of States, causes economic anomalies that 
are an artifact of the benchmarking approach, distorts seasonality in 
the previous year so that analysis is impaired, and often misses shocks 
to the economy.
    To address these serious issues, the improved model-based approach 
to estimation will ensure that State estimates add to the national 
estimates of employment and unemployment each month, through real-time 
benchmarking. In doing so, the benchmark will change from annual State-
level estimates of employment and unemployment to monthly national 
estimates of these measures. In this way, economic shocks will be 
reflected in the State estimates on a real-time basis, and end-of-year 
revisions will be significantly smaller.
    The improved State models are signal-plus-noise models, where the 
signal is a bivariate model of the unemployment or the employment 
level. The same inputs used in the current models are used in the new 
models. Seasonal adjustment occurs within the new model structure, with 
the removal of the seasonal component. The proposed models with real-
time benchmarking produce reliability measures for the seasonally 
adjusted and not seasonally adjusted series, and on over-the-month and 
over-the-year change.
    Under real-time benchmarking, a tiered approach to estimation is 
used. Model-based estimates (using a univariate form) are developed for 
the nine Census divisions that geographically exhaust the nation. 
(Census division groupings are currently used to analyze and publish 
LAUS estimates.) These estimates are controlled to the national levels 
of employment and unemployment. State model-based estimates are then 
made and controlled to the Census Division estimates. In this manner, 
the monthly State employment and unemployment estimates will add to the 
national levels, precluding differences between the sum of States and 
the national estimates, and national shocks related to the business 
cycle or outliers like September 11 will be addressed.
    Annual historical benchmarking will still continue for State 
estimates but would be greatly altered. The updating of model inputs, 
model reestimation, and incorporation of updated population controls 
would be performed each year. However, the impact on the historical 
series of these benchmark activities is considered to be fairly small.
    Extending Model-based Estimation to Additional Areas. Currently, 
monthly labor force estimates for New York City, the balance of New 
York State, the Los Angeles metropolitan area, and the balance of 
California are developed using model-based methods. (These models will 
be updated to the form used for States and described above.) As part of 
the LAUS improvement efforts, model-based estimation will be extended 
to the following areas and the respective balance-of-State areas: 
Chicago metropolitan division, Cleveland metropolitan area, Detroit 
metropolitan division, Miami metropolitan division, New Orleans 
metropolitan area, and Seattle-Everett metropolitan division. This will 
improve the statistical basis of the estimation for these areas, and 
provide important tools for analysis such as measures of error and 
seasonally adjusted series.
    These area models will follow the form of the Census divisions 
(univariate), and will be benchmarked to the State employment and 
unemployment estimates on a real-time basis. As with the State models, 
seasonally adjusted series will be

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produced, along with measures of error for the seasonally adjusted and 
not seasonally adjusted series, and on over-the-month and over-the-year 
change.
    New and Reentrant Unemployment. There has been a long-standing 
concern in the LAUS program regarding the estimation of unemployment at 
the substate level (for areas other than New York City, Los Angeles, 
and the balances of New York State and California). Of specific concern 
is the measurement of unemployed new and reentrants to the labor 
market. The difficulty in estimating new and reentrants led to the use 
of a proportionate adjustment of area estimates to the State total 
unemployed as a way of controlling for the underestimate at the area 
level. The current research has led to a proposal for an improved 
methodology.
    The new methodology incorporates the CPS new and reentrants State 
data and utilizes improved econometric modeling techniques. The new 
model follows the basic form of the model created in 1983 and used 
today, but has been updated and improved. The proposed model uses a 
stochastic nonlinear estimation process rather than the global linear 
procedure used currently. A stochastic, or random, coefficient is one 
whose value is allowed to change over time. In this model, the values 
of the model coefficients change from month to month as the models are 
updated with information from current observations.
    The model estimates are distributed to each labor market area in 
the State based on the area's share of the State population. New 
entrants are distributed based on the area's share of the State 16-19 
year old population, and reentrants are distributed based on the area's 
share of the State 20 years and older population.
    The new method of estimation successfully addresses the issue of 
underestimation and eliminates the need for significant proportionate 
adjustment of area estimates to the monthly State levels of 
unemployment.
    Residency Adjustment. The underlying concepts and definitions of 
all labor force data developed by the LAUS program are consistent with 
those of the Current Population Survey (CPS), including the requirement 
that measures relate to the place of residence of the labor force 
participant. Establishment-based data on the number of nonagricultural 
wage and salary jobs by place of work from the Current Employment 
Statistics (CES) or the Quarterly Census of Employment and Wages (QCEW) 
programs is the only current, geographically comprehensive source of 
information on employment at the substate level, and are a significant 
input to LAUS estimation. The establishment series differs from the CPS 
in that the CPS counts employed persons where they reside rather than 
jobs by place of work. Thus, the establishment-based data must be 
adjusted to account for multiple-job holding and residency prior to use 
in LAUS estimation.
    The current procedure utilizes a single adjustment ratio for each 
estimating area, using Decennial census data and March-April average 
establishment-based data. The Census estimate of all employed residents 
in an area is divided by the job count. This ratio is then applied each 
month to the nonfarm wage and salary estimate for the area to produce 
the resident nonfarm wage and salary employed estimate for the area.
    A basic problem with the current Census-based procedure of 
adjusting for residency was the limited geographic scope for 
influencing the area's estimate of resident employed and static nature 
of the approach. Recognizing that labor market areas often are not 
defined to the point where commutation is zero, and that, in the 
intercensal period, job growth can and does occur in the areas 
surrounding the estimating area, a new approach to developing resident 
employment was considered.
    The proposed method postulates that resident employment in an area 
is a function not only of the relationship between employed residents 
and jobs in that area, but in other areas within commuting distance. 
The procedure is more dynamic than the current method insofar as job 
count changes in commuting areas can affect resident employment. As in 
the current procedure, however, the commuting ratios themselves are 
fixed for the intercensal period.
    Detailed descriptions of the current and Redesign approaches are 
available at the above address and at the BLS LAUS Web site http://www.bls.gov/lau/home.htm.
    Comments submitted in response to this notice will be summarized 
and included in the Notice of Decision on this proposal.
    This notice is a general solicitation of comments from the public.

    Signed in Washington, DC., this 29th day of October, 2004.
John M. Galvin,
Associate Commissioner, Office of Employment and Unemployment 
Statistics, Bureau of Labor Statistics.
[FR Doc. 04-24733 Filed 11-5-04; 8:45 am]
BILLING CODE 4510-24-P