Very interesting developments on the labor market, and more precisely on the way it is reported. The BLS just released its annual revision to the total non farm payroll numbers. The “error” was 30% (818,000 less employees over last 12 months) which initially will lead you to think that: (1) you can’t trust that number/calculation and (2) we have a weaker labor market than we thought, and therefore, the Fed should act. But there is a big however: if you look at the chart below, there has been a big increase in employment for foreign born workers, and some of them are hired “off the books”, in other words, out of the oficial payroll system (W-2). The percentage of those workers was meaningless in the past, but has recently become so important that has distorted the numbers, since the way the BLS calculates the payroll numbers demands a W-2 employee in order to be counted. The bottom line is the employment is deteriorating albeit not as badly as the revision shows, but the underground economy (off books, off taxes) in the U.S. is growing. Furthermore, the off-the-books workers may not be entitled to vote, but the native-born workers that have lost their jobs, do.
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