BLS Establishment Estimates Revised to Incorporate March 1998 Benchmarks - United States Bureau of Labor Statistics - Statistical Data Included

Employment and Earnings, June, 1999 by Sheila McConnell

BLS is continuing the practice of making special adjustments for average weekly hours and average weekly overtime series to account for the presence or absence of religious holidays in the April survey reference period and Labor Day in the September reference period. From 1988 forward those adjustments are accomplished as a part of the X-12 ARIMA modeling process; estimates prior to 1988 were adjusted through a moving-holiday extension of X-11 ARIMA.

A special adjustment also is made in November each year for poll workers in the local government, except education series; this adjustment is incorporated as part of the X-12 modeling process for 1988 forward. An X-11 based procedure is used for earlier years.

The standard procedure for seasonal adjustment for the local education employment series was improved with the 1997 benchmark. In the past, the seasonal factors for this industry were derived using the standard seasonal adjustment procedure of a logarithmic transformation of the data as input for the multiplicative decomposition of the series. However, in recent years the forecasted seasonal factors have failed to adequately reflect the changing behavior of this industry in the summer months. The factors for this industry are now derived using a square-root transformation of the data as input for an additive decomposition of the series. These modifications produce seasonal factors that better reflect current industry seasonal patterns. However, the annual averages of seasonally adjusted and unadjusted series will not be equal.

Refinements in hours and earnings seasonal adjustment. With the release of the 1997 benchmark, BLS implemented refinements to the seasonal adjustment process for the hours and earnings series to correct for distortions related to the method of accounting for the varying length of payroll periods across months. There is a significant correlation between over-the-month changes in both the average weekly hour (AWH) and the average hourly earnings (AHE) series and the number of weekdays in a month, resulting in non-economic fluctuations in these two series. Both AWH and AHE show more growth in `short' months (20 or 21 weekdays) than `long' months (22 or 23 weekdays). Much of the previously unexplained volatility in these series is attributable to this calendar effect. The calendar effect is evident from 1989 forward in most service-producing industries and at the total private level. The effect is stronger for the AWH than the AHE series.

The calendar effect is traced to response and processing errors associated with converting payroll and hours information from sample respondents with semi-monthly or monthly pay periods to a weekly equivalent. The response error comes from sample respondents reporting a fixed number of total hours for workers regardless of the length of the reference month, while the CES conversion process assumes the hours reporting will be variable. A constant level of hours reporting most likely occurs when employees are salaried rather than paid by the hour, as employers are less likely to keep actual detailed hours records for these employees. This causes artificial peaks in the AWH series in shorter months that are reversed in longer months.